A decrease in price causes:
A) a quantity effect, which is an increase in revenue that results from selling fewer units of the good.
B) a price effect, which is an increase in revenue that results from receiving a lower price for each unit sold.
C) both a price effect and quantity effect.
D) a decrease in quantity demanded.

Question

Quizplus · Accepted Answer

A decrease in price leads to both a price effect - which increases revenue by selling more units - and a quantity effect - which decreases revenue by selling at a lower price. Therefore, both effects occur simultaneously.

A Decrease in Price Causes