ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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A product has perfectly inelastic price elasticity of demand. What will happen to total revenue if the price of the product rises by 10%?
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it will fall by 10%
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it will fall to zero
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it will remain unchanged
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it will rise by 10%
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Explanation:
Detailed explanation-1: -When demand is price inelastic, a given percentage change in price results in a smaller percentage change in quantity demanded. That implies that total revenue will move in the direction of the price change: an increase in price will increase total revenue, and a reduction in price will reduce it.
Detailed explanation-2: -More Overall Revenue On the other hand, if the price for an inelastic good is increased and the demand does not change, the total revenue increases due to the higher price and static quantity demanded. However, price increases typically do lead to a small decrease in quantity demanded.
Detailed explanation-3: -a) If demand is price inelastic, then increasing price will decrease revenue.
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