Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The demand is elastic, as consumers significantly reduce their purchases in response to price increases.
B
The demand is inelastic, meaning consumers will continue to buy the same amount despite price increases.
C
The demand is perfectly elastic, indicating that any price increase will lead to no sales.
D
The demand is unitary elastic, where total revenue remains unchanged regardless of price changes.
Understanding the Answer
Let's break down why this is correct
Answer
When a company raises the price of its product and sees a drop in total revenue, it suggests that the demand for that product is elastic. This means that customers are sensitive to price changes; when the price goes up, many choose not to buy the product or look for cheaper alternatives. For example, if a coffee shop raises the price of a cup of coffee, and many regular customers decide to stop buying it, the shop's total revenue will fall. In this case, the demand is elastic because the percentage decrease in quantity sold is greater than the percentage increase in price. Therefore, the company might consider lowering the price again to boost sales and total revenue.
Detailed Explanation
When demand is elastic, people buy much less if the price goes up. Other options are incorrect because Some might think that inelastic demand means people keep buying the same amount; Perfectly elastic demand means any price increase leads to no sales at all.
Key Concepts
Total Revenue
Demand Elasticity
Consumer Behavior
Topic
Total Revenue and Demand Elasticity
Difficulty
easy level question
Cognitive Level
understand
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