Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Demand is elastic
B
Demand is inelastic
C
Demand is unitary elastic
D
Demand is perfectly elastic
Understanding the Answer
Let's break down why this is correct
Answer
When a product's price decreases and total revenue increases, it indicates that the price elasticity of demand for that product is elastic. This means that consumers are very responsive to changes in price; when the price goes down, they buy significantly more of the product. For example, if a popular snack's price drops from $2 to $1 and sales increase from 100 to 200 units, the total revenue rises from $200 to $200. This shows that the demand is elastic because the decrease in price leads to a larger increase in quantity sold. In summary, elastic demand means that lower prices can lead to higher revenue.
Detailed Explanation
When the price goes down and people buy more, it shows they are responsive to price changes. Other options are incorrect because Some might think that lower prices always mean less revenue; Unitary elastic means revenue stays the same when prices change.
Key Concepts
Total revenue and elasticity
Income elasticity of demand
Topic
Elasticity of Demand
Difficulty
medium level question
Cognitive Level
understand
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