Which of the following statements about price elasticity of demand most accurate?
A) The more substitutes a product has, the more likely it is to be price elastic.
B) Price elasticity with inelastic demand must always be greater than 1.
C) Unitary demand represents the relationship between the cash outlay necessary to purchase a product relative to a person's disposable income.
D) With inelastic demand, reducing price will result in an increase of total revenue.
E) With inelastic demand, reducing price will result in an increase in total revenue, although not necessarily an increase in profit.

Question

Quizplus · Accepted Answer

The availability of substitutes is a major factor affecting price elasticity; the more substitutes available, the more likely consumers are to switch to a lower-priced alternative, making demand more elastic.

Answer: D
 With inelastic demand, reducing the price will lead to a proportionately smaller increase in quantity demanded, resulting in a smaller increase in total revenue.

Therefore, statement B, C, and E are inaccurate.

Which of the Following Statements About Price Elasticity of Demand