Multiple choice

The requirement is to identify the effect on total revenue of a decrease in price of a price elastic product. If a product’s demand is elastic and there is a decrease in price, the effect will be ___________.

  1. a decrease in total revenue

  2. no change in total revenue

  3. a decrease in total revenue and the demand curve shifts to the left

  4. an increase in total revenue

  5. none of these
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Correct, because if a product’s demand is price elastic, a decrease in price will lead to an even larger percentage increase in quantity demanded. Therefore, the total revenue will increase.

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