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A price change causes the quantity demanded of a good to increase by 20 percent, while...

A price change causes the quantity demanded of a good to increase by 20 percent, while the total revenue of that good increases by 15 percent. Is the demand curve elastic or inelastic? Explain.

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Answer #1

Quantity demanded of a good increase by 20 % due to change in price.

It means there is decrease in price because quantity demanded increase.

And total revenue is also increase.

It conclude that price decrease causes a increase in total revenue. This is happened when demand is elastic (price change and total revenue are negatively related).

Note: In case of elastic demand price change and total revenue are negatively related.

In case of inelastic demand, price change and total revenue are positively related.

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