When demand is relatively inelastic, a 5% increase in price will:
A)increase total revenue by more than 5%
B)increase total revenue by less than 5% .
C)decrease total revenue by more than 5 %.
D)Decrease total revenue by more than 5%.
E)decrease total revenue, but it is unknown whether it will be by more or less than 10%.

Question

Quizplus · Accepted Answer

When demand is relatively inelastic, a small increase in price will lead to a small decrease in quantity demanded. As a result, the total revenue (price x quantity) will increase by less than the increase in price. Therefore, a 5% increase in price will lead to an increase in total revenue by less than 5%.

When Demand Is Relatively Inelastic, a 5% Increase in Price