When demand is elastic, a fall in price causes total revenue to rise because a

Economics Jan 22, 2021

When demand is elastic, a fall in price causes total revenue to rise because

a. the increase in quantity is large enough to offset the lower price

b. when price falls, quantity increases so total revenue automatically rises

c. the demand curve shifts

d. the percentage increase in quantity demanded is less than the percentage fall in price

Expert Solution

a) the increase in quantity is large enough to offset the lower price.

Demand is said to be elastic when there is a large change in the quantity demanded due to a change in prices. When the demand for a product is elastic, a change in price results in a significant change in the quantity requested. As a result, when the price of the product falls, the quantity demanded increases that are large enough to compensate for the lower prices, and, as a result, the total revenue increases.

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