Elasticity and Outperforming Command Systems
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1) Is it wrong to use the total revenue test for elasticity, when there is a direct relationship between price and total revenue the demand is elastic?
2) Have market systems outperform command systems of economic over the 200 years.
3) The United States is an example of a pure market system of economics without elements of command or tradition.
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Solution Summary
This solution explains if it is wrong to use the total revenue test for elasticity when there is a direct relationship between price and total revenue. This solution also explains if market systems outperform command systems of economics over the past 200 years, and if the U.S. is an example of a pure market system of economics without elements of command or tradition.
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1) When there is a direct relationship between price and total revenue, demand is elastic and when there is an inverse relationship, demand is inelastic. When the price of an inelastic good increases, total revenue increases because the good is inelastic. When price of an elastic good increases, there is a decrease in total revenue, creating a direct relationship. When the prices of inelastic goods increase, we don't see that drop in demand, instead we see an increase due to the inelasticity of the good with no substitutes (certain medications, special batteries for a pacemaker, etc). It is not false to use the total revenue test for elasticity - the total revenue test for elasticity tells us if the relationship exists by determining ...
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