Question

When the demand for a product is price elastic, a rise in its price causes total revenue to:

Select one:

a. fall because quantity sold remains the same and thus total revenue falls.

b. fall because the higher price per product is not enough to offset the decrease in revenue from the fall in quantity sold.

c. rise because the higher price per product will more than offset the fall in revenue due to the decrease in quantity sold.

d. fall because the quantity sold will decrease, therefore total revenue falls.

Answer 1

Answer - fall because the quantity sold will decrease, therefore total revenue falls

Explaination -

When the demand is price elastic, it means that an increase in price will decrease the demand and a decrease in price will increase the demand. Revenue is effected by change in price and the quantity sold.

When the demand is price elastic the demand will inversely change more than the change in price. So, as the price increases , demand decreases and the total number of units sold decreases to such an extent that even an increase in price is unable to offset the revenue. And the total revenue falls.