Which of the following is true of an increase in product prices?
A) The quantity effect always dominates the price effect.
B) The price effect always dominates the quantity effect.
C) When the quantity effect dominates the price effect, total revenue increases.
D) When the quantity effect dominates the price effect, total revenue decreases.

Question

Quizplus · Accepted Answer

When product prices increase, the quantity effect and the price effect work in opposite directions. The quantity effect states that with higher prices, fewer products will be sold, which decreases total revenue. The price effect states that with higher prices, each product sold may generate more revenue, which increases total revenue. If the quantity effect dominates the price effect, total revenue decreases.

Which of the Following Is True of an Increase in Product