Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
A decrease in price leads to a decrease in total revenue.
B
A decrease in price leads to no change in total revenue.
C
A decrease in price leads to an increase in total revenue.
D
A decrease in price leads to a decrease in quantity demanded.
Understanding the Answer
Let's break down why this is correct
Answer
When demand is inelastic, it means that consumers do not significantly change the quantity they buy even when prices go up. In this case, if a company raises its prices, the total revenue will increase because the loss in sales volume is smaller than the gain from the higher prices. For example, if a company sells medicine that people need, even if they raise the price, most customers will still buy it because they cannot go without it. Therefore, when demand is inelastic, increasing prices can lead to higher total revenue. This shows how important it is for businesses to understand consumer behavior when setting prices.
Detailed Explanation
When demand is inelastic, people buy about the same amount even if the price goes down. Other options are incorrect because This option suggests that lowering the price makes total revenue go down; This choice says total revenue stays the same when price drops.
Key Concepts
inelastic demand
unitary elastic demand
Topic
Total Revenue and Demand Elasticity
Difficulty
medium level question
Cognitive Level
understand
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