Which of the following statements about price elasticity of demand is most accurate?
A) Price elasticity with unitary demand is less than 1.
B) The more substitutes a product has, the less likely it is to be price elastic.
C) Unitary demand represents the relationship between the cash outlay necessary to purchase a product relative to a person's disposable income.
D) With inelastic demand, reducing price will result in a decrease of total revenue.
E) With inelastic demand, reducing price will result in an increase in total revenue, although not necessarily an increase in profit.

Question

Quizplus · Accepted Answer

With inelastic demand, reducing price will result in a decrease of total revenue. This is because the decrease in price is not significant enough to increase the quantity demanded, so the decrease in price is not offset by an increase in sales. Therefore, the total revenue decreases.

Which of the Following Statements About Price Elasticity of Demand