Question

The demand for a good is elastic if _____ Select one: a. an increase in price leads to an increase in total revenue. b. a decrease in price causes no changes in total revenue. c. an increase in price leads to a decrease in total revenue. d. a decrease in price leads to a decrease in total revenue. e. an increase in price causes no change in total revenue.

Answer 1

Answer - An increase in price leads to a decrease in total revenue ( Option C )

Explanation -:
According to Total Expenditure / Total Outlay method-:
1- If a rise or fall in the price of a good has no change in its total revenue, then the elasticity of demand is unitary(e = 1) .

2- If there is fall in the price of a good, total revenue increases or if there is rise in the price of a good, the total revenue decreases, then the demand for that good is elastic (e>1)

3- If there is fall in the price of a good, total revenue decreases or if there is rise in the price of a good, the total revenue increases, then the demand for that good is inelastic (e< 1).