Which statement about total revenue and elasticity is true?

Which statement about total revenue and elasticity is true?

• A. If demand is elastic, a price increase increases total revenue.
• B. If demand is elastic, a price decrease decreases total revenue.
• C. If demand is inelastic, a price increase increases total revenue.
• D. If demand is unit elastic, total revenue always increases with price changes.

Answer: (C)

The main idea is how total revenue reacts to price changes through the responsiveness of buyers, which is measured by elasticity. Total revenue equals price times quantity, so how quantity responds to a price move determines whether revenue goes up or down. If demand is inelastic, the percentage drop in quantity is smaller than the percentage rise in price. That means the higher price more than offsets the fall in quantity, so total revenue increases when the price goes up. For example, a 10% price increase might lead to only about a 5% drop in quantity, boosting revenue overall. When demand is elastic, quantity responds more than proportionally to price changes. A price increase would cause a large drop in quantity, reducing total revenue. Conversely, a price decrease would raise total revenue in this case. With unit elastic demand, the percentage change in quantity exactly matches the percentage change in price, so total revenue stays about the same when price changes. So the statement that matches these relationships is that, with inelastic demand, raising the price increases total revenue.

The main idea is how total revenue reacts to price changes through the responsiveness of buyers, which is measured by elasticity. Total revenue equals price times quantity, so how quantity responds to a price move determines whether revenue goes up or down.

If demand is inelastic, the percentage drop in quantity is smaller than the percentage rise in price. That means the higher price more than offsets the fall in quantity, so total revenue increases when the price goes up. For example, a 10% price increase might lead to only about a 5% drop in quantity, boosting revenue overall.

When demand is elastic, quantity responds more than proportionally to price changes. A price increase would cause a large drop in quantity, reducing total revenue. Conversely, a price decrease would raise total revenue in this case.

With unit elastic demand, the percentage change in quantity exactly matches the percentage change in price, so total revenue stays about the same when price changes.

So the statement that matches these relationships is that, with inelastic demand, raising the price increases total revenue.