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

Question

Quizplus · Accepted Answer

The price effect refers to the change in total revenue resulting from the change in the price of a product, holding the quantity sold constant. The quantity effect refers to the change in total revenue resulting from the change in the quantity sold, holding the price constant. When the price effect dominates the quantity effect (meaning the increase in revenue from raising the price is greater than the loss in revenue from selling fewer units), total revenue increases.

Which of the Following Is True of an Increase in Product