Question

which of the following is true about the price elasticity of demand? question 1 options: a) when demand is elastic, a decrease in the price leads to a decrease in total revenue. b) when demand is perfectly elastic, a rise in the price leads to an increase in total revenue. c) when demand is perfectly inelastic, a rise in the price leads to a decrease in total revenue. d) when demand is inelastic, a rise in the price leads to an increase in total revenue.

Answer 1

The price elasticity of demand measures how responsive the quantity demanded of a product is to changes in its price. When demand is elastic, a decrease in price leads to a decrease in total revenue. When demand is inelastic, a rise in price leads to an increase in total revenue.

Step-by-step explanation:

The price elasticity of demand measures how responsive the quantity demanded of a product is to changes in its price. Based on the given options:

1. Option a) When demand is elastic, a decrease in price leads to a decrease in total revenue. This is true because the percentage decrease in price will result in a larger percentage increase in quantity sold, which offsets the decrease in price, resulting in lower total revenue.
2. Option b) When demand is perfectly elastic, a rise in price leads to an increase in total revenue. This is not true because perfect elasticity means that quantity demanded is infinitely responsive to changes in price, so any increase in price would cause quantity demanded to drop to zero, resulting in zero total revenue.
3. Option c) When demand is perfectly inelastic, a rise in price leads to a decrease in total revenue. This is not true because perfect inelasticity means that quantity demanded does not respond at all to changes in price, so any increase in price would not affect total revenue.
4. Option d) When demand is inelastic, a rise in price leads to an increase in total revenue. This is true because inelastic demand means that quantity demanded is not very responsive to changes in price, so any increase in price would result in a smaller percentage decrease in quantity sold, offsetting the decrease in quantity and resulting in higher total revenue.