A product has price elasticity of demand of -2.5. If the firm raises its price, total revenue will
Answer and explanation
Correct answer: C. fall
- Step 1: With elastic demand the percentage fall in quantity is greater than the percentage rise in price. Answer: fall. Why not the others: rise: Demand is elastic, so the fall in quantity outweighs the higher price. stay the same: That happens when elasticity equals -1. rise at first and then fall: With constant elastic demand revenue falls throughout.
Practise more Demand, supply and elasticity.
Free questions with an explanation for every one, and full timed KASNEB CPA Foundation Level (Kenya) mock tests.
More Demand, supply and elasticity questions
- According to the law of demand, when the price of a good rises, the quantity demanded
- Which of the following would shift the demand curve for tea to the right?
- A rise in the price of coffee leads to an increase in the demand for tea. Tea and coffee are
- When the price of a good rises from KSh 20 to KSh 25 and the quantity demanded falls from 100 to 80, what is the price elasticity of demand…
- The demand for salt is likely to be
- At a price of KSh 50 the quantity supplied is 200 units; at KSh 60 it is 260 units. What is the price elasticity of supply?