Question

Which of the following is not a characteristic of a commodity with inelastic demand?

		a) Total revenue decreases if price rises.
		b) The absolute value of the price elasticity coefficient is less than one.
		c) Buyers are relatively not so responsive to price changes.
		d) The relative change in quantity demanded is less than the relative change in price.

Answer 1

Option a

Total revenue decreases if the price rises

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Elasticity is a measure of change in quantity because of change in price in proportional or in percentage term.

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total revenue and elasticity has the following relationship

1. total revenue increase as price increases if demand is inelastic

2. total revenue is maximum when demand is unit elastic

3.total revenue decreases as price decreases if demand is inelastic

4. total revenue increases as price decrease if demand is elastic

5. total revenue decreases as price increases if demand is elastic.

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elastic demand, elastcity>1

unit elastic demand, elastcity=1

inelastic demand, elastcity<1

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