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

Question

Quizplus · Accepted Answer

This scenario describes a situation where demand is price elastic, meaning consumers are very sensitive to changes in price. As a result, when the price increases by 2%, there is a greater than 2% decrease in quantity demanded. This leads to a decrease in total revenue, as the increase in price is not enough to offset the decrease in quantity demanded.

When a 2 Percent Increase in Price Generates a Greater