When a 2 percent increase in price generates a greater than 2 percent decrease in quantity demanded, then:
A) demand is inelastic.
B) total revenue increases as a result of the price increase
C) total revenue decreases as a result of the price increase.
D) demand is unit elastic.

Question

Quizplus · Accepted Answer

When a 2 percent increase in price generates a greater than 2 percent decrease in quantity demanded, demand is considered elastic. This means that consumers are highly responsive to changes in price and will reduce their purchases significantly when prices increase. As a result, total revenue will decrease when prices are increased, as the decrease in quantity demanded will offset the increase in price. Therefore, the correct choice is C.

When a 2 Percent Increase in Price Generates a Greater