If demand is inelastic, which of the following must happen when the price decreases? a

Economics Jan 19, 2021

If demand is inelastic, which of the following must happen when the price decreases?

a. deadweight loss decreases

b. quantity decreases

c. total revenue decreases

d. profit increases

Expert Solution

The correct answer is c. total revenue decreases.

If demand is inelastic, price is changing faster in percentage terms than quantity is. Since total revenue is the product of price and quantity, a decrease in price will cause a smaller increase in quantity demanded (again in percent terms). This results in total revenue falling.

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