Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Total revenue increases if demand is elastic
B
Total revenue decreases if demand is elastic
C
Total revenue remains unchanged regardless of elasticity
D
Total revenue always decreases for inelastic demand
Understanding the Answer
Let's break down why this is correct
Answer
When the price of a product falls, the total revenue it generates depends on how sensitive buyers are to that price change. If demand is elastic, the drop in price leads to a proportionally larger increase in quantity sold, so revenue goes up. If demand is inelastic, the quantity sold rises only a little, and the lower price outweighs the extra sales, causing revenue to fall. When the elasticity is exactly one (unit elastic), the extra units sold exactly offset the lower price, so revenue stays the same. For example, if a shirt’s price falls from $10 to $8 and sales rise from 100 to 200 units, revenue rises from $1,000 to $1,600 because demand is elastic.
Detailed Explanation
When the price falls, buyers buy more. Other options are incorrect because Some think revenue falls when demand is elastic, but that is wrong; Revenue does change with elasticity.
Key Concepts
total revenue
Topic
Price Elasticity of Demand
Difficulty
easy level question
Cognitive Level
understand
Practice Similar Questions
Test your understanding with related questions
1
Question 1How does the law of supply interact with the price elasticity of demand to affect market equilibrium when a price increase occurs?
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Question 2A company notices that when they increase the price of their product by 10%, the quantity demanded decreases by 20%. How can the company use this information regarding price elasticity of demand to make strategic pricing decisions in the future?
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3
Question 3How does a decrease in consumer income typically affect the demand for inferior goods?
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4
Question 4How does a price elasticity of demand greater than 1 affect consumer behavior when prices increase?
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5
Question 5Price elasticity of demand is to responsiveness of quantity demanded as consumer confidence is to what?
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6
Question 6Which of the following statements accurately describe price elasticity of demand? Select all that apply.
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