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If a decrease in the price of movie tickets increases the total revenue of movie theaters, this is evidence that demand is a. price elastic. b. price inelastic. c. unit elastic with respect to price. d. perfectly inelastic.
Economics For Today
Solutions
Economics For Today
If a decrease in the price of movie tickets increases the total revenue of movie theaters, this is evidence that demand is
- a. price elastic.
- b. price inelastic.
- c. unit elastic with respect to price.
- d. perfectly inelastic.
Implication of decrease in the price of movie tickets on increased revenue of theater.
Explanation of Solution
The degree of responsiveness in the demand for the commodity due to a change in the price level of the commodity in the economy is known as the elasticity of demand. The coefficient of the elasticity determines the type of demand. When the elasticity coefficient is zero, it indicates a perfectly inelastic demand which would remain the same even when the price changes. When the demand is perfectly elastic, the coefficient of elasticity would be infinity. All other options lie between these two extremes.
Option (a):
The demand is said to be elastic when there is an inverse relationship between the demand and the price exists. This means that an increase in the price decreases the demand and vice versa. Here, the decrease in the price leads to an increase in the demand and increase in the total revenue of the theater. This shows that the percentage change in the demand is higher than the percentage change in the price. This means that the demand is elastic. Thus, option 'a' is correct.
Option (b):
When the decrease in the price does not lead to much increase in the demand and the percentage change in the demand is less than the percentage change in the price, it is known as the price inelastic...
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