ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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a rise in price will raise total revenue.
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a fall in price will raise total revenue.
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a fall in price will lower the quantity demanded.
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a rise in price won’t have any effect on total revenues.
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Detailed explanation-1: -a) If demand is price inelastic, then increasing price will decrease revenue. b) If demand is price elastic, then decreasing price will increase revenue.
Detailed explanation-2: -In the elastic region, the percentage change in quantity demanded is greater than the percentage change in price, so raising the price in this region of the demand curve will decrease total revenue while lowering the price increases total revenue.
Detailed explanation-3: -Price and total revenue have a negative relationship when demand is elastic (price elasticity > 1), which means that increases in price will lead to decreases in total revenue. Price changes will not affect total revenue when the demand is unit elastic (price elasticity = 1).
Detailed explanation-4: -If demand for a product is price elastic and the price increases, total revenue will decrease. If demand for a product is price inelastic and the price decreases, total revenue will decrease.
Detailed explanation-5: -If the price for an inelastic good is lowered, the demand for that good does not increase, resulting in less overall revenue due to the lower price and no change in demand. This would indicate that the firm should not reduce the price of its goods as there is no beneficial outcome in doing so.