Principles of Microeconomics, 7th Edition

Published by South-Western College

Chapter 5 - Part II - Elasticity and its Application - Questions for Review: 5

Answer

If demand is elastic, an increase in price will result in a decrease in total revenue received by producers.

Work Step by Step

Since we know that the demand for the good is elastic, this means that an increase in price will cause a decrease in quantity demanded that is greater in magnitude than the change in price. The formula to calculate total revenue is $Q \times P$, and since we know that an increase in P will cause a decrease in Q of greater magnitude, we know that total revenue must decrease mathematically as a result of the price increase.

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