📚 Learning Guide
Price Elasticity and Revenue
hard

Price elasticity of demand is to total revenue as consumer surplus is to what?

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Learning Path
Learning Path

Question & Answer
1
Understand Question
2
Review Options
3
Learn Explanation
4
Explore Topic

Choose the Best Answer

A

Deadweight loss

B

Market equilibrium

C

Producer surplus

D

Price ceiling

Understanding the Answer

Let's break down why this is correct

Answer

Price elasticity of demand tells us how much the quantity demanded of a product changes when its price changes. When demand is elastic, a small price decrease can lead to a large increase in total revenue, while inelastic demand means that total revenue might not change much with price changes. Similarly, consumer surplus is related to how much benefit consumers get from purchasing a product at a lower price than they are willing to pay. Just as price elasticity affects total revenue, consumer surplus can be thought of in relation to producer surplus, which represents the benefit producers receive when selling at a higher price than their minimum acceptable price. For example, if a consumer is willing to pay $10 for a toy but buys it for $7, their consumer surplus is $3, while the producer's surplus is the difference between their cost and the selling price.

Detailed Explanation

Consumer surplus is the benefit buyers get from paying less than they would. Other options are incorrect because Some might think deadweight loss is similar, but it actually shows lost value; Market equilibrium is about balance in supply and demand.

Key Concepts

Price Elasticity of Demand
Total Revenue
Consumer Surplus
Topic

Price Elasticity and Revenue

Difficulty

hard level question

Cognitive Level

understand

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