If Pete raises the price of his muffins from $2 to $3 and his sales revenue increases from $35 000 to $38 000,then:
A)the demand for Pete's muffins in this range is price elastic.
B)the demand for Pete's muffins in this range is price inelastic.
C)the demand for Pete's muffins in this range is unit elastic.
D)the percentage change in quantity demanded must exceed the percentage change in product price.
E)this is impossible since this would violate the law of demand.

Question

Quizplus · Accepted Answer

Since raising the price of muffins led to an increase in sales revenue, we know that demand must still exist at the higher price point. However, since the increase in revenue is not proportional to the increase in price (i.e. a $1 increase in price did not lead to a $1 increase in revenue), we can conclude that the demand for Pete's muffins in this range is price inelastic. This means that consumers are still willing to purchase the muffins even at the higher price point.

If Pete Raises the Price of His Muffins from $2