Total revenue decreases as the price of a good increases, if the demand for the good is rev: 05_14_2018

Multiple Choice

- unitary elastic.

- inelastic.

- elastic.

- perfectly elastic.

Answer: Option (C) is correct.

Explanation:

Elastic demand means that percentage change in price lead to greater change in the quantity demanded.

So, if the price of a good decreases then the consumers demand for a good increases and hence increase in the total revenue. On the other hand, if the price of a good increases then as a result demand for that commodity decreases and hence decrease in the total revenue.

What unit elasticity means, therefor, is that any increase in the price causes a decrease in demand that keeps revenue the same. In a normal market a price which maximizes revenue must have this property, by definition, because if a higher price produces more revenue, we obviously have not maximized it