Question

) 10) Which of the following statements is not correct? A) If the relative change in price is greater than the relative change in the quantity demanded associated with it, demand is inelastic. B) Total revenue will not change if price varies within a range where the elasticity coefficient is unity C) In the range of prices in which demand is elastic, total revenue will diminish as price decreases D) Demand tends to be elastic at high prices and inelastic at low prices

Answer 1

Option C is incorrect.

Note that when the demand is elastic it implies that for a given change in the price the quantity demanded changes more than proportionately. Total revenue is the product of price and quantity. So when price is decreasing and therefore quantity demanded is increasing, we expect that the increase in the quantity demanded is more than the decrease in the price so that the total revenue will increase. Hence, when demand is elastic total revenue and price move in the opposite direction and not follow each other.