When the price of peanut butter rises by 4 percent, total revenue decreases by 8 percent. The demand for peanut butter
A)is elastic.
B)is inelastic.
C)is unit elastic.
D)has a price elasticity equal to 1/2.
E)has a price elasticity equal to 2.

Question

Quizplus · Accepted Answer

The fact that a small increase in price (4%) caused a large decrease in total revenue (8%) indicates that the demand for peanut butter is elastic, meaning that consumers are sensitive to changes in price and will reduce their quantity demanded significantly in response to a small increase in price. Therefore, a small increase in price led to a larger decrease in quantity demanded, resulting in a decrease in total revenue.

When the Price of Peanut Butter Rises by 4 Percent