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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050

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BuyFindarrow_forward

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

An increase in the supply of a good will decrease the total revenue producers receive if

a. the demand curve is inelastic.

b. the demand curve is elastic.

c. the supply curve is inelastic.

d. the supply curve is elastic.

To determine
How increase in supply affects elasticity and total revenue.

Explanation

Option (a)

An increase in supply shift the supply curve rightwards resulting in a lower price of goods. When demand is inelastic, a decrease in price leads a small change in the quantity demanded; hence it leads to a decrease in total revenue, which producers receive. So option ‘a’ is correct.

Option (b)

An increase in supply shift the supply curve rightwards resulting in a lower price of goods. When demand is elastic, a decrease in price leads to an increase in total revenue because the increase in quantity demanded outweighs the decrease in price. So option ‘b’ is incorrect...

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