Question : Assertion: When the price of a product decreases and its total revenue increases, the demand for that product must be elastic.
Reason: Elastic demand implies that a decrease in price results in a more than proportionate increase in quantity demanded, leading to higher total revenue.
Option 1: Both the assertion and reason are correct and related.
Option 2: Both the assertion and reason are correct but not related.
Option 3: The assertion is correct, but the reason is incorrect.
Option 4: The assertion is incorrect, but the reason is correct.
Correct Answer: Both the assertion and reason are correct and related.
Solution : The correct answer is (A) Both the assertion and reason are correct and related.
The assertion states that when the price of a product decreases and its total revenue increases, the demand for that product must be elastic. This assertion is correct. When the price of a product decreases, and the total revenue increases, it suggests that the increase in quantity demanded is significant enough to offset the decrease in price. This implies that the demand for the product is elastic, as consumers are responsive to the price change.
The reason provided states that elastic demand implies that a decrease in price results in a more than proportionate increase in quantity demanded, leading to higher total revenue. This reason is also correct. Elastic demand means that the percentage change in quantity demanded is greater than the percentage change in price. In this case, when the price decreases, the quantity demanded increases by a proportionately larger amount, resulting in a more than proportionate increase in total revenue.
Question : Assertion: When the price of a product increases, and its total revenue decreases, the demand for that product must be inelastic.
Reason: Inelastic demand implies that an increase in price leads to a proportionately smaller decrease in quantity demanded, resulting in lower total revenue.
Question : Assertion: When the price of a product decreases, its quantity demanded increases.
Reason: The law of demand states an inverse relationship between price and quantity demanded.
Question : Assertion: The price elasticity of demand for a perfectly elastic demand curve is infinity.
Reason: A perfectly elastic demand curve is horizontal, indicating that the quantity demanded becomes infinite at a specific price.
Reason: A perfectly elastic demand curve is horizontal, indicating that quantity demanded becomes infinite at a specific price.
Question : Assertion: When a good has a price elasticity of demand equal to 1, it is considered unit elastic. Reason: Unit elastic demand implies that the percentage change in quantity demanded is equal to the percentage change in price.
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