An increase in price will cause a firm's total revenue to increase if demand is price elastic.

a. True

b. False

The correct answer is (b).

• It is incorrect to say that a price increase will cause a firm's total revenue to increase if demand is price elastic.

An elastic demand curve indicates that as the price of a product increases, the quantity demanded reduces. This is observed in perfect markets where there are many sellers or a market with close and perfect alternatives. If the demand curve for a market with perfect elasticity is plotted on a graph, a horizontal line is generated. The elasticity could also be less than proportionate such that the decrease in quantity demanded is less than the price change. If a firm facing an elastic demand curve increases its prices, sales volume reduces as consumers shift purchases to alternative providers or substitute products.b