Question

Given a price elasticity of demand of

minus−​0.8,

a decrease in price will

A.

reduce total revenue.

B.

decrease quantity.

C.

leave total revenue unchanged.

D.

increase total revenue.

The total gains from trade within a price system is

A.

always equal to zero.

B.

the area beneath the market demand curve and above the market-clearing price plus the area above the market supply curve and beneath the market-clearing price.

C.

the area beneath the market demand curve and above the market-clearing price minus the area beneath the market supply curve and beneath the market clearing price.

D.

the area beneath the market supply curve and above the market clearing price plus the area above the market demand curve and beneath the market clearing price.

Answer 1

1.

Correct Answer:

A

When  price elasticity of demand is -.8, then it means that demand is relatively inelastic in nature. So, decrease in price, sill not going to affect quantity demanded significantly. Hence, total revenue will decrease with a decrease in price.

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2.

Correct Answer:

B

Total gain from trade is referred as total surplus from the trade, that is the sum of consumer surplus and producer surplus.