Consider the demand curve in the graph shown. Suppose price is initially $6 and falls to $4. Which of the following statements is true?
A) The quantity effect will outweigh the price effect, and total revenue will rise.
B) The quantity effect will outweigh the price effect, and total revenue will fall.
C) The price effect will outweigh the quantity effect, and total revenue will rise.
D) The price effect will outweigh the quantity effect, and total revenue will fall.

Question

Consider the demand curve in the graph shown. Suppose price is initially $6 and falls to $4. Which of the following statements is true?
A) The quantity effect will outweigh the price effect, and total revenue will rise. 
B) The quantity effect will outweigh the price effect, and total revenue will fall. 
C) The price effect will outweigh the quantity effect, and total revenue will rise. 
D) The price effect will outweigh the quantity effect, and total revenue will fall.

Quizplus · Accepted Answer

When the price falls from $6 to $4, the quantity demanded increases from 8 to 12. The quantity effect (increase in quantity demanded) will not be enough to offset the price effect (decrease in price per unit), resulting in a decrease in total revenue. Therefore, the price effect will outweigh the quantity effect, and total revenue will fall.

Consider the Demand Curve in the Graph Shown