Asked by Pasha Harmidy on Jun 11, 2024
Verified
Which of the following is correct?
A) If the demand for a product is inelastic, a change in price will cause total revenue to change in the opposite direction.
B) If the demand for a product is inelastic, a change in price will cause total revenue to change in the same direction.
C) If the demand for a product is inelastic, a change in price may cause total revenue to change in either the opposite or the same direction.
D) The price elasticity coefficient applies to demand, but not to supply.
Inelastic
Describes a situation where the quantity demanded or supplied changes by a smaller percentage than the percentage change in price.
Total Revenue
is the total amount of money received by a company from its sales of goods or services, before any expenses are subtracted.
Price Elasticity
A measure of how much the quantity demanded of a good responds to a change in its price, with high elasticity indicating sensitivity.
- Scrutinize the influence of price shifts on the amount of demand and total revenue generated.
- Understand the interface between changing prices and the resultant variations in total revenue.
Verified Answer
SF
Shelby FrankJun 16, 2024
Final Answer :
B
Explanation :
When demand is inelastic, a price increase leads to a less-than-proportional decrease in quantity demanded, thus total revenue (price x quantity) increases, and vice versa for a price decrease. This means total revenue changes in the same direction as the price change.
Learning Objectives
- Scrutinize the influence of price shifts on the amount of demand and total revenue generated.
- Understand the interface between changing prices and the resultant variations in total revenue.