If demand is elastic, a decrease in price will cause total revenue to

If demand is elastic, a decrease in price will cause total revenue to

• A. Decrease.
• B. No Change.
• C. Depends on magnitude.
• D. Increase.

Answer: (D)

Elastic demand means quantity responds more than proportionally to price changes. So when price falls, the quantity demanded rises by a larger percentage than the price falls, and total revenue (price times quantity) increases because the gain from selling more units outweighs the lower price per unit. If demand were inelastic, a price drop would reduce total revenue, and if it were unit elastic, total revenue would stay the same. Here, with elastic demand, a decrease in price increases total revenue.

Elastic demand means quantity responds more than proportionally to price changes. So when price falls, the quantity demanded rises by a larger percentage than the price falls, and total revenue (price times quantity) increases because the gain from selling more units outweighs the lower price per unit. If demand were inelastic, a price drop would reduce total revenue, and if it were unit elastic, total revenue would stay the same. Here, with elastic demand, a decrease in price increases total revenue.