If the price of a product increases from $10 to $12 and the quantity demanded decreases from 40 to 30,then according to the total-revenue test,the product is price elastic in this price range.

Question

Quizplus · Accepted Answer

Total revenue = price x quantity demanded

Initially, total revenue = $10 x 40 = $400
After the price increase, total revenue = $12 x 30 = $360

Since the total revenue has decreased, we can conclude that the demand is sensitive to price changes, i.e. the product is price elastic in this price range. Therefore, the answer is A.

If the Price of a Product Increases from $10 to $12