An increase in price:
A) cannot cause a quantity effect.
B) cannot cause a price effect.
C) causes a decrease in revenue resulting from selling fewer units and a simultaneous increase in revenue resulting from receiving a higher price.
D) causes an increase in quantity demanded.

Question

Quizplus · Accepted Answer

An increase in price will result in a decrease in the quantity demanded. However, because the price of the product has increased, the additional revenue earned from selling the product at a higher price will partially offset the revenue decrease from selling fewer units. This is known as the price effect and the quantity effect. Therefore, C is the correct answer as it correctly identifies the effects of an increase in price.

An Increase in Price