{"id":22137,"date":"2025-06-16T13:39:57","date_gmt":"2025-06-16T13:39:57","guid":{"rendered":"https:\/\/gaviki.com\/blog\/?p=22137"},"modified":"2025-06-16T13:40:03","modified_gmt":"2025-06-16T13:40:03","slug":"total-revenue-will-decrease-if-price-responses","status":"publish","type":"post","link":"https:\/\/gaviki.com\/blog\/total-revenue-will-decrease-if-price-responses\/","title":{"rendered":"Total revenue will decrease if price Responses"},"content":{"rendered":"\n<p>Total revenue will decrease if price Responses <\/p>\n\n\n\n<p>A rises and demand is elastic. rises and demand is elastic. <\/p>\n\n\n\n<p>B rises and demand is unit elastic rises and demand is unit elastic <\/p>\n\n\n\n<p>C rises and demand is inelastic. rises and demand is inelastic. <\/p>\n\n\n\n<p>D falls and demand is unit elastic.<\/p>\n\n\n\n<p><strong><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-vivid-cyan-blue-color\">The correct answer and explanation is:<\/mark><\/strong><\/p>\n\n\n\n<p><strong>Correct Answer: B) rises and demand is elastic.<\/strong><\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Explanation (300 words):<\/strong><\/h3>\n\n\n\n<p>Total revenue is calculated as <strong>Price \u00d7 Quantity Sold<\/strong>. How revenue changes when price changes depends on the <strong>price elasticity of demand<\/strong> \u2014 a measure of how sensitive quantity demanded is to changes in price.<\/p>\n\n\n\n<p><strong>Elastic demand<\/strong> means that consumers are highly responsive to price changes. Specifically, when demand is <strong>elastic<\/strong>, the absolute value of the price elasticity of demand is greater than 1. This means a small increase in price leads to a larger percentage decrease in quantity demanded.<\/p>\n\n\n\n<p>So, if:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Price rises<\/strong><\/li>\n\n\n\n<li><strong>Demand is elastic<\/strong><\/li>\n<\/ul>\n\n\n\n<p>Then:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Quantity demanded <strong>drops significantly<\/strong><\/li>\n\n\n\n<li>The <strong>decrease in quantity<\/strong> outweighs the <strong>increase in price<\/strong><\/li>\n\n\n\n<li>As a result, <strong>total revenue decreases<\/strong><\/li>\n<\/ul>\n\n\n\n<p>This is because consumers will reduce their purchases considerably in response to the higher price, and the business will sell fewer units \u2014 so much fewer that it more than offsets the extra money per unit.<\/p>\n\n\n\n<p>Let\u2019s visualize with an example:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Original price<\/strong>: $10<\/li>\n\n\n\n<li><strong>Original quantity sold<\/strong>: 100 units<\/li>\n\n\n\n<li><strong>Total revenue<\/strong>: $10 \u00d7 100 = $1,000<\/li>\n<\/ul>\n\n\n\n<p>Now suppose the price rises to $12 (20% increase), but due to elastic demand, quantity sold falls to 70 units (30% decrease):<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>New total revenue<\/strong>: $12 \u00d7 70 = $840 \u2192 <strong>Revenue decreases<\/strong><\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">What about the other options?<\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>C) Rises and demand is inelastic<\/strong>: Quantity doesn\u2019t fall much, so <strong>total revenue increases<\/strong>.<\/li>\n\n\n\n<li><strong>D) Falls and demand is unit elastic<\/strong>: Revenue <strong>stays the same<\/strong> because the percent change in price equals the percent change in quantity.<\/li>\n\n\n\n<li><strong>A) Rises and demand is unit elastic<\/strong>: Again, revenue <strong>remains constant<\/strong>.<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Conclusion:<\/h3>\n\n\n\n<p>The only scenario where <strong>total revenue decreases<\/strong> is when <strong>price rises and demand is elastic<\/strong>, which is why <strong>option B<\/strong> is correct.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Total revenue will decrease if price Responses A rises and demand is elastic. rises and demand is elastic. B rises and demand is unit elastic rises and demand is unit elastic C rises and demand is inelastic. rises and demand is inelastic. D falls and demand is unit elastic. The correct answer and explanation is: [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-22137","post","type-post","status-publish","format-standard","hentry","category-quiz-questions"],"_links":{"self":[{"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/posts\/22137","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/comments?post=22137"}],"version-history":[{"count":1,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/posts\/22137\/revisions"}],"predecessor-version":[{"id":22138,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/posts\/22137\/revisions\/22138"}],"wp:attachment":[{"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/media?parent=22137"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/categories?post=22137"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/tags?post=22137"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}