ECONOMICS
ELASTICITY OF DEMAND
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
Total revenue decreases
|
|
|
Total revenue increases
|
|
|
Total revenue stays the same
|
|
|
Total revenue decreases by 4%
|
Detailed explanation-1: -If price changes by a larger percentage than quantity demanded (i.e., if demand is price inelastic), total revenue will move in the direction of the price change. If price and quantity demanded change by the same percentage (i.e., if demand is unit price elastic), then total revenue does not change.
Detailed explanation-2: -, PED) is a measure of how sensitive the quantity demanded is to its price. When the price rises, quantity demanded falls for almost any good, but it falls more for some than for others.
Detailed explanation-3: -A price increase will therefore increase total revenue while a price decrease will decrease total revenue. Finally, when the percentage change in quantity demanded is equal to the percentage change in price, demand is said to be unit elastic.
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.