As price falls along the elastic portion of a linear demand curve, _______ decrease while _______ increase.
Answers.
A. only price; quantity demanded , consumer surplus, and consumer expenditures
B. consumer surplus and price; quantity demanded and consumer expenditures
C. quantity demanded and price; consumer surplus and consumer expenditures
D. consumer expenditures, quantity demanded, and price; consumer surplus
As a tie breaker, I would join with mister and go with A
The correct answer is C. quantity demanded and price; consumer surplus and consumer expenditures.
Explanation:
Along the elastic portion of a linear demand curve, as price falls, quantity demanded will increase. This is because consumers are more responsive to price changes and will demand more of the good at a lower price. Additionally, consumer surplus, which represents the difference between the price consumers are willing to pay and the price they actually pay, will increase. This is because as the price decreases, consumers are able to purchase the good at a lower price and therefore experience a greater surplus. Consumer expenditures, on the other hand, may or may not increase. It depends on the magnitude of the price decrease and the resulting increase in quantity demanded.
To determine the correct answer, let's first understand what elasticity and linear demand curve mean in this context.
Elasticity of demand refers to the responsiveness of the quantity demanded to a change in price. When demand is elastic, a small change in price leads to a relatively larger change in quantity demanded. On the other hand, when demand is inelastic, quantity demanded does not change significantly in response to a change in price.
A linear demand curve is a straight line on a graph that represents the relationship between the price of a product and the quantity demanded. It shows how quantity demanded changes as price changes. If the demand curve is linear, it means that the elasticity of demand is not constant but changes at different price levels.
Now, let's analyze the options:
A. only price; quantity demanded, consumer surplus, and consumer expenditures
This option suggests that as price falls along the elastic portion of a linear demand curve, only price decreases while quantity demanded, consumer surplus, and consumer expenditures remain unchanged. This is not accurate because, along the elastic portion of the demand curve, as price decreases, the quantity demanded increases.
B. consumer surplus and price; quantity demanded and consumer expenditures
This option suggests that as price falls along the elastic portion of a linear demand curve, consumer surplus and price decrease, while the quantity demanded and consumer expenditures increase. This is not accurate because along the elastic portion of the demand curve, as price falls, the quantity demanded increases, so the answer cannot include a decrease in quantity demanded.
C. quantity demanded and price; consumer surplus and consumer expenditures
This option correctly states that as price falls along the elastic portion of a linear demand curve, both quantity demanded and price decrease. Additionally, consumer surplus and consumer expenditures can increase because lower prices may incentivize consumers to purchase larger quantities, resulting in higher total expenditures and consumer surplus.
D. consumer expenditures, quantity demanded, and price; consumer surplus
This option suggests that all four factors (consumer expenditures, quantity demanded, price, and consumer surplus) would decrease as price falls along the elastic portion of a linear demand curve. This is not accurate because, along the elastic portion of the demand curve, as price falls, the quantity demanded increases, and consumer surplus may also increase due to the lower prices.
From the analysis above, we can conclude that the correct answer is:
C. quantity demanded and price; consumer surplus and consumer expenditures