Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Analyze the change in total revenue after a price change
B
Identify whether the price increase led to an increase or decrease in total revenue
C
Determine if the demand is elastic or inelastic based on total revenue changes
D
Adjust prices and observe consumer behavior
Understanding the Answer
Let's break down why this is correct
Answer
To determine demand elasticity using the total revenue test, you first need to observe how total revenue changes when the price of a product changes. If you increase the price and total revenue goes up, this means demand is inelastic, meaning consumers are not very sensitive to price changes. On the other hand, if raising the price causes total revenue to fall, demand is elastic, indicating that consumers are sensitive to price changes. For example, if a coffee shop raises the price of coffee from $3 to $4 and sees total revenue drop from $1,000 to $800, it suggests that demand for coffee is elastic because people are buying less when the price goes up. Finally, if total revenue remains the same after a price change, demand is unit elastic, meaning that changes in price do not affect total revenue.
Detailed Explanation
First, you need to look at how total revenue changes when the price changes. Other options are incorrect because This step is too early; You can't determine if demand is elastic or inelastic until you analyze the total revenue changes first.
Key Concepts
Total Revenue Test
Demand Elasticity
Consumer Behavior
Topic
Total Revenue and Demand Elasticity
Difficulty
easy level question
Cognitive Level
understand
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