Question

When demand is ________, increases in price result in increases in total revenues, while decreases in price result in decreases in total revenue.

A) elastic
B) inelastic
C) flexible
D) supply-driven
E) cross-elastic

Answer 1

When demand is inelastic, price increases lead to higher total revenues and price decreases lead to lower total revenues, because the quantity demanded changes little with price changes.

Step-by-step explanation:

When demand is inelastic, increases in price result in increases in total revenues, while decreases in price result in decreases in total revenue. This is because inelastic demand indicates a situation where the quantity demanded is relatively unresponsive to price changes. Therefore, when prices increase, consumers continue to purchase nearly the same amount of the product, leading to higher total revenue for sellers. Conversely, when prices decrease, consumers do not significantly increase their purchases, which results in lower total revenue.