Which of the following is FALSE regarding inelastic demand? A) Price elasticity of demand is less than 1 (Ep 1). D) If a firm lowers price, total revenues will fall.

Question

Which of the following is FALSE regarding inelastic demand?
A) Price elasticity of demand is less than 1 (Ep < 1).
B) If a firm raises price, total revenues will go up.
C) Price elasticity of demand is greater than 1 (Ep > 1).
D) If a firm lowers price, total revenues will fall.

Quizplus · Accepted Answer

Inelastic demand means that the quantity demanded is not very responsive to changes in price. This implies that the price elasticity of demand is less than 1 (Ep < 1), as stated in option A. Option B is false because inelastic demand means that if a firm raises price, total revenues will not necessarily go up, since the increase in revenue from each unit sold may not offset the decrease in the quantity sold. Similarly, option D is false because if a firm lowers price, total revenues may not necessarily fall, since the increase in the quantity sold may more than offset the decrease in revenue from each unit sold. Therefore, the only false statement is Option C, which mistakenly suggests that inelastic demand means price elasticity of demand is greater than 1 (Ep > 1).

Which of the Following Is FALSE Regarding Inelastic Demand