A jeweler cut prices in his store by 20%. As a result:
A)Its total revenue would fall by 20% if the elasticity of demand was zero.
B)Its total revenue would fall, but by less than 20% if the elasticity of demand is greater than zero but less than one.
C)Its total revenue would rise if the elasticity of demand is greater than one.
D)All of the above would be true.

Question

A jeweler cut prices in his store by 20%. As a result:
A)​Its total revenue would fall by 20% if the elasticity of demand was zero.
B)​Its total revenue would fall, but by less than 20% if the elasticity of demand is greater than zero but less than one.
C)​Its total revenue would rise if the elasticity of demand is greater than one.
D)​All of the above would be true.

Quizplus · Accepted Answer

A) With zero elasticity, demand doesn't change with price, so a 20% price cut directly reduces revenue by 20%. B) If demand is inelastic (elasticity between 0 and 1), a price cut increases quantity sold but not enough to offset the price reduction, so revenue falls but by less than 20%. C) With elastic demand (elasticity greater than 1), a price cut increases quantity sold by a proportion greater than the price reduction, raising total revenue.

A Jeweler Cut Prices in His Store by 20