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Which of the following statements is incorrect? A
Which of the following statements is incorrect?
A. If a firm decreases the price of its product, its total revenue will decrease.
B. The own price elasticity of demand is constant at all points along a linear demand curve.
C. As the price of X falls and we move down an individual's demand curve for X, the money income of the individual also changes.
D. All of the answers are incorrect.
Expert Solution
All of these statements are incorrect. Statement A is true if the firm is facing an inelastic demand curve, but it is false if the firm is facing an elastic demand curve. With an elastic demand curve, a decrease in price incentivizes so many new customers, the results outweigh the lost revenue from the price drop.
Statement B is also false. The most inelastic portion of a linear demand curve is toward the bottom, and the most elastic portion is toward the top.
Finally, statement C is false because an individual's demand curve for a good is derived with a specific income in mind. If an individual's income changes, this will cause the demand curve to shift.
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