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.
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