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A
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B
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Understanding the Answer
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Answer
The statement is true: when demand is elastic, the percentage drop in quantity sold is larger than the percentage rise in price, so total revenue (price × quantity) falls. If a product’s demand elasticity is greater than one, a 10 % price hike will reduce quantity demanded by more than 10 %, shrinking revenue. For example, a 20 % price increase on a toy that sells 1,000 units at $10 each would drop sales to 800 units; revenue falls from $10,000 to $8,000. Thus, for elastic goods, higher prices always lower total revenue.
Detailed Explanation
When demand is elastic, a price rise makes buyers cut back a lot more than the price goes up. Other options are incorrect because The mistake is thinking that a higher price always brings more money.
Key Concepts
Price Elasticity of Demand
Total Revenue
Elastic vs. Inelastic Demand
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 price elasticity of demand affect total revenue when the price of a product decreases?
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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 3Arrange the following steps in the process of determining the price elasticity of demand for a product: A) Calculate the percentage change in quantity demanded, B) Identify the initial price and quantity demanded, C) Calculate the percentage change in price, D) Use the elasticity formula to determine elasticity value.
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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 5If the price of a luxury car increases by 10% and the quantity demanded decreases by 15%, what does this indicate about the price elasticity of demand?
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6
Question 6Price elasticity of demand is to responsiveness of quantity demanded as consumer confidence is to what?
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7
Question 7Which of the following statements accurately describe price elasticity of demand? Select all that apply.
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8
Question 8A smartphone manufacturer notices that when they increase the price of their latest model by 10%, the quantity demanded decreases by 15%. How would you classify the price elasticity of demand for this smartphone?
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