Question

An increase in the supply of a good will decrease the total revenue producers receive if Select one: a. the supply curve is elastic. b. the demand curve is inelastic. c. the demand curve is elastic. d. the supply curve is inelastic.

Answer 1

The correct answer is option b.

Step-by-step explanation:

An increase in the supply of a product will cause the supply curve to shift to the right. This rightward shift in the supply curve will cause a decrease in the price level.

A decrease in the price level will cause the total revenue to decline if the demand curve is inelastic.

With an inelastic demand curve, a decrease in price will cause a less than proportionate increase in the quantity demanded. So the total revenue will decline.

An elastic demand curve, on the other hand, will increase the total revenue by causing a more than proportionate increase in the quantity demanded.