Question

CLASS: Elastic or Inelastic?

A price change causes the quantity demanded of a good to drop by 20 percent, yet total revenue still increases by 10 percent. Is demand elastic or inelastic? How can you tell?

Answer 1

the elasticity is a measure of sensitiveness of quantity because of change in the price. The demand is elastic then the quantity change is higher than the price in proportion and vice versa.

the price dropped by 20% and revenue increased by 10% means that the demand is elastic because the total revenue is increased even the price is dropped which means that the effect on the quantity is higher than the price so the total product is increased

total revenue=price*quantity

TR=P*Q
1.1TR=0.8P*Q

so the Q is increased more than the decrease in price in proportion to the product is higher than the earlier and that is shown by the elastic demand.