If the quantity of bananas sold increases by 5 percent when the price decreases by 10 percent, the price change occurs in the
A) bottom half of the downward-sloping straight-line demand curve and total revenue decreases from this price change.
B) bottom half of the downward-sloping straight-line demand curve and total revenue increases from this price change.
C) top half of the downward-sloping straight-line demand curve and total revenue decreases from this price change.
D) top half of the downward-sloping straight-line demand curve and total revenue increases from this price change.

Question

Quizplus · Accepted Answer

The price elasticity of demand is less than 1 (inelastic) because the percentage change in quantity demanded (5%) is less than the percentage change in price (10%). This suggests the price change occurs in the bottom half of the demand curve. Since the price decrease leads to a smaller proportional increase in quantity sold, total revenue decreases.

If the Quantity of Bananas Sold Increases by 5 Percent