If the price elasticity of demand for Good X is 1 in absolute value, which of the following is TRUE? I. When the price of the good changes, the total revenue for the product does not change. II. A percentage drop in price will lead to an equal percentage increase in quantity demanded. III. When the price of the product rises, total revenue also increases.
A) I only
B) I and II only
C) II and III only
D) II only

Question

Quizplus · Accepted Answer

If the price elasticity of demand for a good is 1 in absolute value, it means that a percentage change in price will lead to an equal percentage change in quantity demanded. This confirms II. As for I, if the elasticity is 1, a change in price will result in the same percentage change in quantity demanded, so the total revenue (price times quantity) will remain the same. Hence, I is also true. However, III is incorrect because a rise in price will lead to a decrease in quantity demanded, thus reducing total revenue. Therefore, the correct answer is B: I and II only.

If the Price Elasticity of Demand for Good X Is