You are the owner of a boutique clothing store and estimate the price elasticity of demand for your clothing to be 2.50 and the income elasticity of demand for your clothing to be 1.55. If you increase the price of your clothing, you should expect which of the following to occur?
A)an increase in your total revenue
B)no change in your total revenue
C)an increase in the quantity demanded of your clothing
D)a decrease in your total revenue

Question

Quizplus · Accepted Answer

With an estimated price elasticity of demand of 2.50, a price increase will lead to a more than proportional decrease in the quantity demanded, resulting in a decrease in total revenue. Therefore, D is the best choice.

You Are the Owner of a Boutique Clothing Store and Estimate