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Economics (AS & A Level) · May / June 2024 · Paper 11 · Question 10

9708Price elasticity, income elasticity and cross elasticity of demand

A firm calculates that the income elasticity of demand for its product is –3.0. What can be deduced from this information?

  1. AIn a period of economic growth, its total revenue should increase.
  2. BIn a period of economic recession, its total revenue should increase.
  3. CIt has few substitutes so it should increase its price to increase total revenue.
  4. DIt has many substitutes so it should decrease price to increase total revenue.

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Correct answer: B. In a period of economic recession, its total revenue should increase.

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