Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Total revenue increases
B
Total revenue decreases
C
Total revenue remains unchanged
D
Total revenue fluctuates unpredictably
Understanding the Answer
Let's break down why this is correct
Answer
When the price of a substitute good increases, people are likely to buy more of the original product because it becomes a more attractive option. This happens when two products are substitutes, meaning they can replace each other in consumption. For example, if the price of butter goes up, more people might choose to buy margarine instead. As a result, the demand for margarine increases, leading to higher total revenue for margarine producers. This situation illustrates the concept of positive cross-price elasticity, where the increase in the price of one product causes an increase in the demand for another related product.
Detailed Explanation
When a substitute's price goes up, people buy more of the other product. Other options are incorrect because Some might think that higher prices lead to fewer sales; It seems like nothing changes, but the increase in substitute prices actually boosts sales of the other product.
Key Concepts
cross-price elasticity of demand
Topic
Total Revenue and Demand Elasticity
Difficulty
easy level question
Cognitive Level
understand
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