Elaine, a small grocer, is planning to cut certain prices to increase her sales revenues. What will be the likely result of a price decrease for matches, a good for which the demand is inelastic, and a price decrease for fresh green tomatoes, an item for which consumer demand is elastic?
A) The total revenue derived from both will go up.
B) The total revenue derived from matches will increase, but total revenue derived from tomatoes will decline.
C) The total revenue derived from matches will decline, but total revenues derived from tomatoes will increase.
D) The total revenues derived from both will decline.

Question

Quizplus · Accepted Answer

For inelastic goods like matches, a price decrease leads to a decrease in total revenue. For elastic goods like fresh green tomatoes, a price decrease leads to an increase in total revenue.

Elaine, a Small Grocer, Is Planning to Cut Certain Prices