Holding all other forces constant,if increasing the price of a good leads to a decrease in total revenue,then the demand for the good must be
A) unit elastic.
B) inelastic.
C) elastic.
D) None of the above is correct because a price increase always leads to an increase in total revenue.

Question

Quizplus · Accepted Answer

If increasing the price of a good leads to a decrease in total revenue, it means that the increase in price resulted in a decrease in quantity demanded that is proportionately greater than the increase in price. This indicates that the demand for the good is sensitive to changes in price, which is characteristic of an elastic demand. If the demand were unit elastic or inelastic, the change in price would result in an equal or lesser change in quantity demanded, respectively, and total revenue would increase despite the price increase. The last option is incorrect because a price increase does not always lead to an increase in total revenue.

Holding All Other Forces Constant,if Increasing the Price of a Good