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A price change causes the quantity demanded of a good to decrease by 30 percent, while

Chapter 5, Problem 4

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QUESTION:

A price change causes the quantity demanded of a good to decrease by 30 percent, while the total revenue of that good increases by 15 percent. Is the demand curve elastic or inelastic? Explain.

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QUESTION:

A price change causes the quantity demanded of a good to decrease by 30 percent, while the total revenue of that good increases by 15 percent. Is the demand curve elastic or inelastic? Explain.

ANSWER:

Step 1 of 2

The total revenue is the total income that the producer generates from the sales operation. The increase in total revenue is also dependent on the price elasticity of demand.

When we talk about elastic demand, we mean that the percent change in quantity demanded is greater than the percent change in price. This shows that consumers are highly responsive to price changes.

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