If, as price decreases by 8%, total revenue increases by 5%, what is true about demand? A

Economics Jan 19, 2021

If, as price decreases by 8%, total revenue increases by 5%, what is true about demand?

A. Demand is perfectly inelastic.

B. Demand is inelastic, but not perfectly inelastic.

C. Demand is unit elastic.

D. Demand is elastic.

Expert Solution

Answer: D

For revenue to increase when prices decline, quantity demanded must increase in a larger percent terms than price fell. This means the percent change of quantity demanded is greater than the percent change in price. Thus, price elasticity of demand is greater than 1 and demand is elastic

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