Figure 5-11 A: the Elasticity of Demand

Multiple Choice

Figure 5-11 A: The Elasticity of Demand
-Refer to Figure 5-11. Suppose this demand curve is a straight, downward-sloping line all the way from the horizontal intercept to the vertical intercept. We choose two prices, P1 and P2, and the corresponding quantities demanded, Q1 and Q2, for the purpose of calculating the price elasticity of demand. Also suppose P2 > P1. In which of the following cases could we possibly find that i) demand is elastic and ii) a decrease in price from P1 to P2 causes an decrease in total revenue?

A) 0 < P1 < P2 < $10.
B) $10 < P1 < P2 $20.
C) P1 > $20.
D) None of the above is correct.