Suppose that when the price of beer is $2 per bottle,firms can sell 4 million bottles.When the price of beer is $3 per bottle,firms can sell 2 million bottles.Which of the following statements is true?
A) The demand for beer is income inelastic,and so an increase in the price of beer will increase the total revenue of beer producers.
B) The demand for beer is income elastic,and so an increase in the price of beer will increase the total revenue of beer producers.
C) The demand for beer is price inelastic,and so an increase in the price of beer will increase the total revenue of beer producers.
D) The demand for beer is price elastic,and so an increase in the price of beer will increase the total revenue of beer producers.

Question

Quizplus · Accepted Answer

The fact that the quantity demanded of beer falls significantly from 4 million to 2 million when the price rises from $2 to $3 per bottle indicates that the demand for beer is price elastic. When demand is elastic, an increase in price leads to a decrease in total revenue for producers, as the decrease in quantity demanded outweighs the increase in price. Therefore, an increase in the price of beer, given the price elasticity of demand for beer, is likely to reduce total revenue for beer producers.

Suppose That When the Price of Beer Is $2 Per