If demand is elastic, a decrease in price will generally lead to a(n) ______ in total revenue.

If demand is elastic, a decrease in price will generally lead to a(n) ______ in total revenue.

• A. increase
• B. decrease
• C. no change
• D. uncertain

Answer: (A)

Elastic demand means the percentage change in quantity demanded is greater than the percentage change in price. When price falls, buyers respond a lot more, so quantity rises by a larger share than price falls. Since total revenue is price times quantity, the bigger boost in quantity more than offsets the lower price, and total revenue increases. For example, if elasticity is greater than 1 in absolute value, a price drop leads to a proportional gain in quantity that outweighs the price decrease, pushing revenue higher.

Elastic demand means the percentage change in quantity demanded is greater than the percentage change in price. When price falls, buyers respond a lot more, so quantity rises by a larger share than price falls. Since total revenue is price times quantity, the bigger boost in quantity more than offsets the lower price, and total revenue increases. For example, if elasticity is greater than 1 in absolute value, a price drop leads to a proportional gain in quantity that outweighs the price decrease, pushing revenue higher.