Tian sells his oil paintings on Kijiji. Tian raises the price he charges for his paintings and finds his revenue increases. In other words, Select one: A. demand for his paintings is inelastic. B. Tian found a way to produce the paintings at lower cost. C. demand for his paintings is elastic. D. the quantity of paintings bought increases. E. the demand for Tian’s paintings shifted left.
The correct answer and explanation is:
Correct Answer: A. demand for his paintings is inelastic.
Explanation:
In economics, price elasticity of demand measures how sensitive the quantity demanded of a good is to a change in its price. There are two main types:
- Elastic demand: If the price increases, the total revenue decreases because people buy significantly less of the product.
- Inelastic demand: If the price increases, the total revenue increases because people still buy almost the same amount despite the price rise.
In this scenario, Tian raises the price of his paintings and his revenue increases. This implies that customers continue to buy his paintings even though they are more expensive. Therefore, the quantity demanded did not decrease significantly. This is the hallmark of inelastic demand.
When demand is inelastic:
- The percentage drop in quantity demanded is less than the percentage increase in price.
- As a result, total revenue (price × quantity) rises.
This is common for unique or highly valued goods—like original oil paintings—which may not have close substitutes. People who value Tian’s artistic style may still buy his work even at a higher price, indicating inelastic behavior.
Let’s review why the other options are incorrect:
- B. Tian found a way to produce the paintings at lower cost: This is about supply or cost, not demand and revenue.
- C. demand is elastic: If this were true, raising prices would have reduced revenue.
- D. quantity of paintings bought increases: Normally, raising prices reduces quantity demanded, unless there’s a demand shift or inelasticity.
- E. demand shifted left: That would indicate a decrease in demand, which would lower revenue, not increase it.
Conclusion:
Since a price increase led to higher revenue, the demand for Tian’s paintings is inelastic. This is why option A is correct.