Question

The price elasticity of demand for gizmos is known to be 3.0 ​(disregarding the negative ​sign)....

The price elasticity of demand for gizmos is known to be 3.0 ​(disregarding the negative ​sign). If sellers of gizmos increase their​ prices, total revenue from gizmo sales will

A. rise.

B. stay the same.

C. fall.

D. There is not enough information to determine the change in revenue.

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Answer #1

Option

C. fall.

Price elasticity of demand is a measure of the sensitiveness of quantity change because of a change in price. The price elasticity is higher than 1 in absolute value means the quantity change is higher than the price. The total revenue is maximum when the demand is unit elastic and it decreases as price increases or decreases at the point and the absolute value of elasticity is positively related to price. The increase in the price at elastic demand decreases revenue.

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