When the price of tea decreases 7%, quantity demanded increases 12%. The price elasticity of demand for tea is ________ and total revenue from tea sales will ________.
A) inelastic; increase
B) inelastic; decrease
C) elastic; increase
D) elastic; decrease

Question

Quizplus · Accepted Answer

The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Here, it is |12% / -7%| = 1.71, which is greater than 1, indicating demand is elastic. When demand is elastic, a decrease in price leads to an increase in total revenue.

When the Price of Tea Decreases 7%, Quantity Demanded Increases