(Figure: Elasticity and Total Revenue) Refer to the figure. If price falls from $60 to $40, total revenue changes by ________, so demand is ________.
A) $120; inelastic
B) $480; elastic
C) $360; inelastic
D) $120; elastic

Question

(Figure: Elasticity and Total Revenue) Refer to the figure. If price falls from $60 to $40, total revenue changes by ________, so demand is ________. 
A) $120; inelastic 
B) $480; elastic 
C) $360; inelastic 
D) $120; elastic

Quizplus · Accepted Answer

When price falls from $60 to $40, the quantity demanded increases from 4 units to 8 units. 
Total revenue before the price change is $240 (4 units x $60). 
Total revenue after the price change is also $240 (8 units x $40). 
Therefore, there is no change in total revenue, which indicates unit elasticity of demand. Hence, the demand is elastic. 
The correct choice is D because the change in total revenue is $120 (zero change in revenue divided by 2, which is the midpoint method), which is a relatively large change, indicating elasticity of demand.

(Figure: Elasticity and Total Revenue) Refer to the Figure