Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Total revenue will decrease
B
Total revenue will increase
C
Total revenue will remain unchanged
D
Total revenue will fluctuate unpredictably
Understanding the Answer
Let's break down why this is correct
Answer
When a product has a price elasticity of demand greater than 1, it means that consumers are very responsive to changes in price. This means that if the price of the product decreases, the quantity demanded will increase by a larger percentage than the price has fallen. As a result, total revenue, which is the price multiplied by the quantity sold, will increase. For example, if a shirt costs $20 and a decrease to $15 leads to a jump in sales from 100 to 150 shirts, the total revenue will rise from $2,000 to $2,250. Therefore, in this case, a price drop leads to higher total revenue because the increase in sales outweighs the lower price.
Detailed Explanation
When demand is elastic, a small price drop leads to a big increase in sales. Other options are incorrect because Some might think lowering the price always means less money; It's a common mistake to think price changes don't matter.
Key Concepts
demand curve
market dynamics.
Topic
Price Elasticity and Revenue
Difficulty
medium level question
Cognitive Level
understand
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