question archive When will an increase in price lead to an increase in total revenue? A
When will an increase in price lead to an increase in total revenue? A
Subject:EconomicsPrice:2.88 Bought3
When will an increase in price lead to an increase in total revenue?
A. When demand is elastic
B. When demand is unitary elastic
C. When the cross-price elasticity is negative
D. When demand is inelastic
E. When income elasticity is positive
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Ans: D. When demand is inelastic.
As we know,
- If PED is greater than 1, then the demand is elastic.
- If PED is less than 1, then the demand is inelastic.
- If PED is equal to 1, then the demand is unitary elastic.
- If PED is equal to 0, then the demand is perfectly inelastic.
- If PED is equal to infinity, then the demand is perfectly elastic.
When demand is elastic, it means 1% increase in price will lead to more than 1% decrease in quantity demanded. In this case, an increase in price will lead to fall in total revenue and a decrease in price will lead to rise in total revenue.
When demand is inelastic, it means 1% increase in price will lead to less than 1% decrease in quantity demanded. In this case, an increase in price will lead to rise in total revenue and a decrease in price will lead to fall in total revenue.
