If the price increases and total revenue falls, the demand for the good is

If the price increases and total revenue falls, the demand for the good is

• A. elastic.
• B. unit elastic.
• C. perfectly elastic.
• D. inelastic.

Answer: (D)

When total revenue falls after a price increase, it means the quantity demanded drops by a larger percentage than the price rises. That is the hallmark of elastic demand (elasticity magnitude greater than 1). Because consumers are quite responsive to price changes, the bigger fall in quantity more than offsets the higher price, so revenue declines. If demand were inelastic, the quantity would not fall enough and revenue would rise with a price increase; if it were unit elastic, revenue would stay about the same. So the correct description is elastic demand.

When total revenue falls after a price increase, it means the quantity demanded drops by a larger percentage than the price rises. That is the hallmark of elastic demand (elasticity magnitude greater than 1). Because consumers are quite responsive to price changes, the bigger fall in quantity more than offsets the higher price, so revenue declines. If demand were inelastic, the quantity would not fall enough and revenue would rise with a price increase; if it were unit elastic, revenue would stay about the same. So the correct description is elastic demand.