Suppose That the Price of Peanuts Falls from $3 to $2

question 122

Multiple Choice

Suppose that the price of peanuts falls from $3 to $2 per bushel and that, as a result, the total revenue received by peanut farmers changes from $16 to $14 billion. Thus,

• A) the demand for peanuts is elastic.
• B) the demand for peanuts is inelastic.
• C) the demand curve for peanuts has shifted to the right.
• D) no inference can be made as to the elasticity of demand for peanuts.

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Definitions:

Flexible Budget

A budget that is stated as a function of some volume measure, such as units produced. Flexible budgets adjust for changes in volume.

Master Budget

A document that integrates all the estimates from the different departments to establish guidelines and benchmarks for the whole organization.

Favorable Variance

A financial term indicating that actual spending was less than budgeted amounts, or revenue was higher than expected.