If demand for a product is price inelastic, a decrease in its price will generally cause total revenue to:
Correct answer: B. Decrease because quantity rises proportionately less
- A. Increase because quantity demanded rises
- B. Decrease because quantity rises proportionately less
- C. Remain unchanged because demand is inelastic
- D. First rise and then fall at every lower price
Explanation
With inelastic demand, the percentage increase in quantity demanded is smaller than the percentage decrease in price. The fall in price therefore outweighs the gain in quantity, causing total revenue to decrease.
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About Microeconomics
Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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