Personalized Study Guide Results:
Score: 12 / 12
Concept: Pricing Decisions
1 . Revenue increases when • A. producer surplus increases
Producer surplus is the difference between the minimum price the producer is willing to receive and what they actually receive. The surplus is their profit, and the larger the surplus, the greater their profit on the good. When it decreases, the producer receives a price closer to the minimum acceptable. The consumer surplus measures what the consumer is willing to pay and that price’s difference from the market price. The closer to the market price, the higher the consumer surplus, as consumers are spending less than they are willing to, and the less spent, the lower the revenue will be for the good.
Materials • Producer Surplus
2 . An increase in the price of an inelastic goods • C. increases revenues
Inelastic goods are necessities that consumers continue to purchase even when the price increases. This increases the revenue, as more is paid for each good. The percentage change in price increases faster than the change in quantity, which may remain constant. When more is paid for a good or a service, revenue increases.
Materials • Price Elasticity and the Total-Revenue Curve • Inelastic Demand
3 . Price elasticity of Demand increases whe • C. people become more price sensitive over time
Price elasticity of demand measures the percentage change in quantity demanded divided by the percentage change in price.