If Pete raises his price of muffins from $2 to $3 and his sales revenue increases from $35,000 to $38,000, then:
A) the demand for Pete's muffins in this range is price elastic.
B) the demand for Pete's muffins in this range is price inelastic.
C) the demand for Pete's muffins in this range is unit elastic.
D) the percentage change in quantity demanded must exceed the percentage change in product price.
E) this is impossible since this would violate the law of demand.

Question

Quizplus · Accepted Answer

The increase in price led to an increase in revenue, indicating that the demand for Pete's muffins in this price range is price inelastic. This means that the percentage change in quantity demanded was less than the percentage change in product price. Option A, C, and D are incorrect because they refer to a different scenario of price elasticity. Option E is incorrect because the scenario described does not violate the law of demand.

If Pete Raises His Price of Muffins from $2 to $3