The total revenue test for elasticity:
A) is equally applicable to both demand and supply.
B) does not apply to demand because price and quantity are inversely related.
C) does not apply to supply because price and total revenue always move together.
D) applies to the short-run supply curve but not to the long-run supply curve.

Question

Quizplus · Accepted Answer

The total revenue test states that if price and total revenue move in the same direction, then the demand (or supply) is inelastic. If price and total revenue move in opposite directions, then the demand (or supply) is elastic. For supply, an increase in price will lead to an increase in total revenue, and a decrease in price will lead to a decrease in total revenue, making the total revenue test irrelevant for supply.

The Total Revenue Test for Elasticity