Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Demand is elastic, as total revenue decreased after the price increase.
B
Demand is inelastic, as the price increase led to higher total revenue.
C
Demand is perfectly elastic, as consumers immediately stopped buying the pastry.
D
Demand is unitary elastic, as total revenue remained unchanged.
Understanding the Answer
Let's break down why this is correct
Answer
To classify the demand for the pastry, we can use the total revenue test. Before the price increase, the bakery sold 100 pastries at $2 each, earning $200 in total revenue. After raising the price to $2. 50, they sold fewer pastries and earned only $225. Since the revenue decreased even though the price went up, this indicates that the demand is elastic, meaning customers are sensitive to price changes.
Detailed Explanation
When the price went up, the bakery made less money overall. Other options are incorrect because This option suggests that raising the price would increase sales; Perfectly elastic means that even a tiny price increase would stop all sales.
Key Concepts
Elasticity of Demand
Total Revenue Test
Consumer Behavior
Topic
Total Revenue and Demand Elasticity
Difficulty
medium level question
Cognitive Level
understand
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