Question : When demand is inelastic, a decrease in price will result in:
Option 1: A decrease in total revenue.
Option 2: An increase in total revenue.
Option 3: No change in total revenue.
Option 4: An unpredictable change in total revenue.
Correct Answer: An increase in total revenue.
Solution : The correct answer is (b) An increase in total revenue.
Inelastic demand means that the quantity demanded is not very responsive to changes in price. When the price decreases, the percentage change in quantity demanded is relatively smaller compared to the percentage change in price. As a result, the increase in quantity demanded due to the lower price does not fully offset the decrease in price. Therefore, the decrease in price leads to an increase in total revenue.
This relationship holds true because the increase in quantity demanded (although relatively small) multiplied by the lower price per unit results in a larger total revenue.
Question : When demand is elastic, a decrease in price will result in:
Question : When the price elasticity of demand is greater than 1, a decrease in price will result in:
Option 1: An increase in total revenue
Option 2: A decrease in total revenue
Option 3: No change in total revenue
Option 4: An indeterminate change in total revenue
Question : When demand is unitary elastic, a price increase results in:
Question : When demand is perfectly inelastic, a change in price will result in:
Option 1: No change in quantity demanded.
Option 2: A small change in quantity demanded.
Option 3: A large change in quantity demanded.
Option 4: An unpredictable change in quantity demanded.
Question : When demand is perfectly elastic, a decrease in price will result in:
Regular exam updates, QnA, Predictors, College Applications & E-books now on your Mobile