ECONOMICS
DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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If demand for a good is inelastic, lowering the price could raise revenue.
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If demand for a good is inelastic, raising the price could reduce revenue.
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If demand for a good is elastic, raising the price must increase revenue.
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If demand for a good is elastic, raising the price could reduce revenue.
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Detailed explanation-1: -The more elastic the demand curve, the easier it is for consumers to reduce quantity instead of paying higher prices. The more elastic the supply curve, the easier it is for sellers to reduce the quantity sold instead of taking lower prices.
Detailed explanation-2: -How does elasticity affect potential revenue for a firm? If demand for a good is inelastic, lowering the price could raise revenue. If demand for a good is inelastic, raising the price could reduce revenue. If demand for a good is elastic, raising the price must increase revenue.
Detailed explanation-3: -When the price elasticity of demand is relatively elastic (−∞ < Ed < −1), the percentage change in quantity demanded is greater than that in price. Hence, when the price is raised, the total revenue falls, and vice versa.
Detailed explanation-4: -If demand is elastic at a given price level, then should a company cut its price, the percentage drop in price will result in an even larger percentage increase in the quantity sold-thus raising total revenue.
Detailed explanation-5: -If demand is elastic, then a price increase reduces the total revenue. When the price increases, then the demand falls by a considerable percentage. Then, total revenue starts moving in contradictory directions. Therefore, total income declines when the price of any commodity rises.