Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The demand is elastic.
B
The demand is inelastic.
C
The demand is unitary elastic.
D
The total revenue is unaffected by the price change.
Understanding the Answer
Let's break down why this is correct
Answer
When the price of a product goes up and the total revenue goes down, it tells us that the demand for that product is elastic. This means that consumers are sensitive to price changes; when the price increases, they buy significantly less of the product. For example, if a coffee shop raises the price of its coffee, and many customers decide to stop buying it or switch to tea, the total money the shop makes from coffee sales will drop. Therefore, the relationship between price and demand is strong enough that a higher price leads to a much larger drop in the quantity sold. This behavior is characteristic of elastic demand, where consumers react strongly to price changes.
Detailed Explanation
When the price goes up and revenue goes down, people buy less. Other options are incorrect because Some might think that higher prices always mean more money made; Unitary elastic means that price changes do not affect total revenue.
Key Concepts
price elasticity of demand
inelastic demand
relationship between price and total revenue
Topic
Total Revenue and Demand Elasticity
Difficulty
hard level question
Cognitive Level
understand
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