If the Elasticity of Demand for Cigarettes Is 0

question 238

Multiple Choice

If the elasticity of demand for cigarettes is 0.75 and the elasticity of supply for cigarettes is 1.25, then a 5 percent decrease in the demand for cigarettes would cause the price of cigarettes to:

• A) increase by 2.5 percent.
• B) increase by 5 percent.
• C) decrease by 2.5 percent.
• D) decrease by 5 percent.

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Definitions:

Total Revenue

Total Revenue is the total amount of money received by a company for goods sold or services provided during a certain time period.

Perfectly Elastic

A situation in which the quantity demanded or supplied responds infinitely to changes in price.

Existing Price

The current market price at which a good or service can be bought or sold.

Total Revenue Curve

A graphical representation showing how a firm’s total revenue changes with variations in the quantity of product sold.