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Questions and Answers
What was the total revenue before the price increase?
What was the total revenue before the price increase?
- $500/hour (correct)
- $400/hour
- $450/hour
- $600/hour
If the price increases by 20%, what is the new price of the coffee?
If the price increases by 20%, what is the new price of the coffee?
- $3.00 (correct)
- $2.50
- $3.50
- $2.00
How many cups will be sold after the price increase?
How many cups will be sold after the price increase?
- 200
- 160
- 170
- 140 (correct)
What is the effect on total revenue after the price increase and decrease in quantity sold?
What is the effect on total revenue after the price increase and decrease in quantity sold?
If the old total revenue was $500/hour, what does a 30% drop in quantity indicate?
If the old total revenue was $500/hour, what does a 30% drop in quantity indicate?
What is the percentage drop in quantity sold after the price increase?
What is the percentage drop in quantity sold after the price increase?
How is total revenue calculated?
How is total revenue calculated?
What is the relationship between price increase and total revenue in this case?
What is the relationship between price increase and total revenue in this case?
What is the formula used to find the percentage change in quantity demanded (%ΔQD)?
What is the formula used to find the percentage change in quantity demanded (%ΔQD)?
If the price of a small cup of coffee increases from $2.50 to $3.00, what is the percentage change in price (%ΔP)?
If the price of a small cup of coffee increases from $2.50 to $3.00, what is the percentage change in price (%ΔP)?
Given an elasticity of demand (ED) of 1.5 and a percentage change in price (%ΔP) of 20%, what is |%ΔQd|?
Given an elasticity of demand (ED) of 1.5 and a percentage change in price (%ΔP) of 20%, what is |%ΔQd|?
What impact does an increase in price have on quantity demanded, assuming elasticity is greater than 1?
What impact does an increase in price have on quantity demanded, assuming elasticity is greater than 1?
How is total revenue (TR) defined based on price and quantity?
How is total revenue (TR) defined based on price and quantity?
What will likely happen to total revenue if price increases and demand is elastic (ED > 1)?
What will likely happen to total revenue if price increases and demand is elastic (ED > 1)?
At what point is elasticity considered unitary?
At what point is elasticity considered unitary?
Which of the following statements is true about the effect of a price increase on quantity demanded when ED = 1.5?
Which of the following statements is true about the effect of a price increase on quantity demanded when ED = 1.5?
What is the new total revenue (TR) if the new expected quantity demanded (QD) is 140 cups per hour and the price is $3?
What is the new total revenue (TR) if the new expected quantity demanded (QD) is 140 cups per hour and the price is $3?
If the price increases, what can we expect to happen to the total revenue (TR)?
If the price increases, what can we expect to happen to the total revenue (TR)?
What is the area of the blue box representing the old total revenue (TR)?
What is the area of the blue box representing the old total revenue (TR)?
How can total revenue (TR) be visually represented in a graph?
How can total revenue (TR) be visually represented in a graph?
What happens to the area of the box representing new TR compared to the area of the box representing old TR?
What happens to the area of the box representing new TR compared to the area of the box representing old TR?
What was the old price used to calculate the old total revenue?
What was the old price used to calculate the old total revenue?
What is the appropriate formula to calculate the area of the rectangle representing total revenue (TR)?
What is the appropriate formula to calculate the area of the rectangle representing total revenue (TR)?
What does a decrease in total revenue (TR) imply about the relationship between price and quantity demanded?
What does a decrease in total revenue (TR) imply about the relationship between price and quantity demanded?
What does an elastic supply indicate about producers' response to price changes?
What does an elastic supply indicate about producers' response to price changes?
Which factor primarily contributes to inelastic supply?
Which factor primarily contributes to inelastic supply?
How does the time horizon affect elasticity of supply?
How does the time horizon affect elasticity of supply?
If the elasticity of supply is measured at 0 < ES < 1, what does this signify?
If the elasticity of supply is measured at 0 < ES < 1, what does this signify?
What effect does creating original content have on the elasticity of demand for Netflix?
What effect does creating original content have on the elasticity of demand for Netflix?
What is indicated by a supply elasticity greater than 1?
What is indicated by a supply elasticity greater than 1?
What characteristic of sellers can lead to inelastic supply?
What characteristic of sellers can lead to inelastic supply?
What might be a consequence of an inaccurate assessment of supply elasticity in agriculture?
What might be a consequence of an inaccurate assessment of supply elasticity in agriculture?
What happens to total revenue when price increases and demand is elastic?
What happens to total revenue when price increases and demand is elastic?
When price decreases, what is the expected outcome for total revenue if demand is inelastic?
When price decreases, what is the expected outcome for total revenue if demand is inelastic?
What effect does an increase in price have on total revenue if demand is inelastic?
What effect does an increase in price have on total revenue if demand is inelastic?
Which statement correctly describes price elasticity of supply?
Which statement correctly describes price elasticity of supply?
Which category of demand results in total revenue rising when price is decreased?
Which category of demand results in total revenue rising when price is decreased?
If a product’s demand is unit elastic, what occurs when there is a price change?
If a product’s demand is unit elastic, what occurs when there is a price change?
What action did the company take concerning its pricing strategy based on the demand information?
What action did the company take concerning its pricing strategy based on the demand information?
If Netflix believes its market demand is inelastic, what might be a characteristic of its pricing strategy?
If Netflix believes its market demand is inelastic, what might be a characteristic of its pricing strategy?
Study Notes
Predicting Changes in Total Revenue
- Price of a small cup of coffee is 2.50;managementconsidersraisingitto2.50; management considers raising it to 2.50;managementconsidersraisingitto3.
- Price elasticity of demand (ED) is estimated at 1.5.
- Price increase of 50 cents leads to a 20% increase in price (%ΔP).
- Change in quantity demanded (%ΔQD) can be calculated using ED and %ΔP: |%ΔQD| = ED * |%ΔP|.
- For this scenario, %ΔQD = 1.5 * 0.20, resulting in a 30% decrease in quantity demanded (QD).
Changes in Total Revenue
- Previous total revenue (TR) at 2.50with200cupssold/hour:TR=2.50 with 200 cups sold/hour: TR = 2.50with200cupssold/hour:TR=2.50 * 200 = $500/hour.
- New expected QD after a 30% reduction is 140 cups/hour (200 - 60).
- New total revenue after the price increase: TR = 3∗140=3 * 140 = 3∗140=420/hour.
- Resulting in a decrease in total revenue from 500/hourto500/hour to 500/hourto420/hour when the price is raised.
Graphical Representation of Total Revenue
- Total revenue can be visualized as the area of a box on a graph, with width representing quantity and height representing price.
- Previous revenue box (old TR) area calculates to 500(500 (500(2.50 * 200 cups/hour).
- New revenue box (new TR) area calculates to 420(420 (420(3 * 140 cups/hour).
Impact of Price Change on Total Revenue
- If demand is elastic, increasing price decreases total revenue; if inelastic, increasing price increases total revenue.
- A price increase will lead to increased TR if demand is inelastic and decreased TR if demand is elastic.
- In this case, raising the price resulted in a fall in total revenue due to the elasticity of demand being greater than one.
Price Elasticity of Supply
- Price elasticity of supply (ES) measures producer responsiveness to price changes.
- Categories include:
- Inelastic supply (0 < ES < 1): Supply unresponsive to price changes.
- Unit elastic (ES = 1).
- Elastic supply (ES > 1): Supply responsive to price changes.
Factors Affecting Elasticity
- Flexibility of sellers affects how quickly supply can adjust to price changes.
- Time horizon influences elasticity; short-run supply is often more inelastic compared to long-run supply.
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Description
This quiz focuses on predicting changes in total revenue based on elasticity of demand and price changes. It covers the methods for calculating percentage changes in quantity demanded and their impact on revenue. Explore various scenarios and apply your understanding of economic principles.
