Answer the following two questions from this Chapter 1A clot

Answer the following two questions from this Chapter.

1.A clothing producer has determined that the price elasticity of demand for its clothing is 3.2. Based on this information, what should it do to increase total revenue?

Select one:

a. decrease price

b. increase price

c. keep price the same

d. need more information to answer the question

2. If quantity demanded increases by 60% when price decreases by 40%, we can conclude that the good is:

Select one:

a. inelastic

b. elastic

c. normal

d. inferior

Solution

Solution-

1. The correct option is A. Decrease prices.

Reason-

The demand for product is elastic when the coefficient of elasticity of demabd is greater than 1. When demand for product is elastic then reduce prices is needed to increase revenue.

2. The correct option is B. Elastic.

Reason-

Ed = % change in quantity demanded / % change in Price

     = 60 / (- 40)

     = -1.5

When the coefficient of price elasticity demand is greater than 1 then demand is Elastic.