Suppose that the price of a good is $10 and quantity demanded is 50 units. When price increases to $12, quantity demanded decreases to 40 units. What happened to total revenue and what does this indicate?
A) Total revenue decreased from $500 to $480, indicating that demand is inelastic.
B) Total revenue decreased from $500 to $480, indicating that demand is elastic.
C) Total revenue increased from $480 to $500, indicating that demand is inelastic.
D) Total revenue increased from $480 to $500, indicating that demand is elastic.

Question

Quizplus · Accepted Answer

When the price increased from $10 to $12, the quantity demanded decreased from 50 units to 40 units. This means that the demand is elastic, as the percentage decrease in quantity demanded is greater than the percentage increase in price. As a result, total revenue decreased from $500 ($10 x 50) to $480 ($12 x 40). When demand is elastic, an increase in price leads to a decrease in total revenue.

Suppose That the Price of a Good Is $10 and Quantity