2. When the percentage change in price is greater than the resulting percentage change in quantity demanded:
A. a decrease in price will increase total revenue.
B. demand may be either elastic or inelastic.
C. an increase in price will increase total revenue.
D. demand is elastic.

Question

2. When the percentage change in price is greater than the resulting percentage change in quantity demanded:
A.    a decrease in price will increase total revenue.
B.    demand may be either elastic or inelastic.
C.    an increase in price will increase total revenue.
D.    demand is elastic.

BlackTom AI · Accepted Answer

Price elasticity of demand (Ed) = (% change in quantity demanded) / (% change in price). If the percentage change in price is greater than the resulting percentage change in quantity demanded, then |%ΔP| > |%ΔQ|, so |Ed| < 1 and demand is inelastic. 1) Relevant concepts - Price elasticity of demand measures responsiveness of quantity demanded to price changes. - If |Ed| < 1, demand is inelastic: quantity responds proportionally less than price. - Total revenue (TR = P × Q) changes depending on elasticity: when demand is inelastic, raising price increases TR; when demand is elastic, raising price decreases TR. 2) Step-by-step reasoning - Given: percentage change in price > percentage change in quantity demanded → |%ΔP| > |%ΔQ|. - Compute elasticity: Ed = (%ΔQ)/(%ΔP). With |%ΔQ| < |%ΔP|, |Ed| < 1 → inelastic demand. - For small changes, approximate % change in TR ≈ %ΔP + %ΔQ. Because %ΔP dominates and has opposite sign to %ΔQ, their sum will have the same sign as %ΔP. 3) Numerical illustration (intermediate steps) - Suppose price increases by 10% and quantity demanded falls by 4% (10% > 4%). - Ed = -4% / 10% = -0.4 (inelastic). - %ΔTR ≈ +10% + (−4%) = +6% → total revenue rises. 4) Why the correct answer is correct - Since the price change proportionally exceeds the quantity response, the price effect on revenue outweighs the loss from selling fewer units. Therefore an increase in price increases total revenue. 5) Why other options are incorrect - A: “a decrease in price will increase total revenue” — incorrect for inelastic demand: lowering price reduces TR because the gained quantity is too small to offset the lower price. - B: “demand may be either elastic or inelastic” — incorrect because the condition specifies |Ed| < 1 (inelastic). - D: “demand is elastic” — incorrect; the described condition implies inelastic, not elastic. 6) Conclusion The correct answer is C: an increase in price will increase total revenue, which matches the provided answer.

2. When the percentage change in price is greater than the resulting percentage change in quantity demanded: A. a decrease in price will increase total revenue. B. demand may be either elastic or inelastic. C. an increase in price will increase total revenue. D. demand is elastic.单项选择题

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