Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Total revenue will increase
B
Total revenue will decrease
C
Total revenue will remain the same
D
Total revenue will fluctuate
Understanding the Answer
Let's break down why this is correct
Answer
When a product has inelastic demand, it means that consumers will continue to buy it even if the price goes up because they consider it necessary or have few alternatives. If the price increases, the total revenue is expected to rise because the percentage decrease in quantity demanded is smaller than the percentage increase in price. For example, if a medicine that people need increases in price by 10%, and the quantity sold only decreases by 2%, the overall revenue from sales will increase. This happens because the extra money earned from the higher price outweighs the loss from selling fewer units. Therefore, inelastic demand leads to higher total revenue when prices go up.
Detailed Explanation
When demand is inelastic, people still buy the product even if the price goes up. Other options are incorrect because Some might think that higher prices always mean fewer sales; It's a common mistake to think that prices and revenue stay the same.
Key Concepts
Inelastic demand
Unitary elasticity
Topic
Understanding Elasticity and Revenue
Difficulty
medium level question
Cognitive Level
understand
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