Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
If total revenue increases when the price increases, demand is elastic.
B
An increase in price leads to a decrease in total revenue for elastic goods.
C
Demand for essential goods, like insulin, tends to be inelastic, meaning price increases do not significantly decrease total revenue.
D
If total revenue decreases when the price decreases, demand is elastic.
E
Total revenue remains unchanged regardless of price changes for perfectly inelastic goods.
Understanding the Answer
Let's break down why this is correct
Answer
Total revenue is the money a company makes from selling its products, and it is closely related to demand elasticity, which measures how much the quantity demanded changes when the price changes. When demand is elastic, a small decrease in price leads to a large increase in the quantity sold, which means total revenue increases. For example, if a store lowers the price of a popular toy from $20 to $15, more people may buy it, raising the total revenue. Conversely, if demand is inelastic, a price drop may lead to a smaller increase in sales, causing total revenue to decrease. Understanding this relationship helps businesses decide how to price their products effectively.
Detailed Explanation
All the statements misunderstand how total revenue and demand elasticity work together. Other options are incorrect because This option suggests that higher prices always mean more money earned; This statement thinks that elastic goods always lose money when prices rise.
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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