Since the demand curve for computer chips is elastic, a decrease in the price of computer chips caused by an increase in productivity will:
A) increase revenue for the computer chip industry and make computers a larger share of the American economy.
B) increase revenue for the computer chip industry and make computers a smaller share of the American economy.
C) decrease revenue for the computer chip industry and make computers a larger share of the American economy.
D) decrease revenue for the computer chip industry and make computers a smaller share of the American economy.

Question

Quizplus · Accepted Answer

An increase in productivity will lead to a decrease in the price of computer chips. As the demand for computer chips is elastic, this price decrease will result in an increase in the quantity demanded of computer chips. This increase in quantity demanded will more than offset the decrease in price, leading to an increase in revenue for the computer chip industry. This increase in revenue will contribute to making computers a larger share of the American economy.

Since the Demand Curve for Computer Chips Is Elastic, a Decrease