A jeweler cut prices in his store by 20% and the dollar value of his sales fell by 20%.This is indicative of:

Question

Quizplus · Accepted Answer

The fact that the dollar value of sales fell by 20% indicates that the demand for the jeweler's products is relatively inelastic (less responsive to price changes), meaning that a price decrease did not result in a significant increase in quantity demanded. In the case of elastic demand, a 20% price cut would have led to a more than 20% increase in quantity demanded, causing the total sales revenue to increase rather than decrease. If the demand was unit elastic, the percentage decrease in sales would have been the same as the percentage decrease in price. A vertical demand curve would indicate that a change in price does not result in any change in quantity demanded, which is not the case here.

A Jeweler Cut Prices in His Store by 20% and the Dollar