1)State true or false and justify your answer:

If demand is inelastic, then an increase in the price of a good will lead to a decrease in total revenue for producers of the good.

2)State true or false and justify your answer:

If demand for a product is unit-elastic, then increasing the price of the product will leave total revenue unchanged.

1)

False

• If the demand is inelastic, a significant increase in price will lead to a small decrease in quantity. The price effect outweighs the quantity effect meaning that if we increase price, the revenue earned from the higher price will outweigh the revenue lost from less units sold and thus revenue will increase.
• Therefore, the above statement is false because if demand is inelastic, then an increase in the price of a good will lead to an increase in total revenue for producers of the good.

2)

• The statement is True.

The elasticity of demand measures the percentage change in quantity demanded due to the percentage change in the price of a good. In the case of unitary elastic demand, the percentage change in price, and the percentage change in quantity are equal. Total revenue is equal to the multiplication of price and quantity demanded. When the increase/ decrease in price leads to an equivalent percentage decrease/ increase in the quantity demanded, there won't be any change in the total revenue as the percentage increase in price will be nullified by the percentage decrease in quantity, making the total revenue to remain constant.