If a 3.67 percent increase in price causes a 1.97 percent decrease in quantity demanded, then total revenue must fall following an increase in price.

Question

Quizplus · Accepted Answer

The statement is incorrect. To determine if total revenue will increase or decrease following an increase in price, the price elasticity of demand must be considered. If the price elasticity of demand is greater than 1, then an increase in price will result in a decrease in total revenue. However, if the price elasticity of demand is less than 1, then an increase in price will result in an increase in total revenue. Therefore, without knowing the price elasticity of demand, it cannot be concluded that total revenue will fall following an increase in price.

If a 367 Percent Increase in Price Causes a 1