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 perfectly elastic
D
Demand is unitary elastic
Understanding the Answer
Let's break down why this is correct
Answer
When a company raises the price of its product and sees that total revenue decreases, it indicates that the demand for that product is elastic. This means that customers are sensitive to price changes; when the price goes up, they buy less of the product. For example, if a coffee shop increases the price of its coffee, and as a result, many customers choose to buy tea instead, this shows that the demand for coffee is elastic. In this situation, the company might need to consider lowering the price again to attract more customers and increase total revenue. Understanding this relationship helps businesses make better pricing decisions based on how people respond to price changes.
Detailed Explanation
When a company raises prices and revenue goes down, it means people are buying less. Other options are incorrect because Some might think inelastic demand means people will buy the same amount no matter the price; Perfectly elastic demand means customers will only buy at one price.
Key Concepts
Elasticity of Demand
Total Revenue
Price Sensitivity
Topic
Total Revenue and Demand Elasticity
Difficulty
medium level question
Cognitive Level
understand
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