Question

The owner of a pizza shop observes that when she raises the price of a large pizza, her total revenue decreases, and when she lowers the price of a large pizza, her total revenue increases. This suggests that:

Answer 1

The demand for large pizza must be elastic.

Step-by-step explanation:

Elasticity of demand measures the responsiveness of quantity demanded to changes in price.

Demand is elastic if a small change in price leads to a greater change in the quantity demanded.

If price is increased, the quantity demanded falls more than the rise in price. As a result of the fall in the quantity demanded, total revenue of the seller falls.

Conversely, if price is reduced, the quantity demanded rises more than the reduction in price and as a result total revenue rises.

The coefficient of elastic demand is greater than 1.

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