The reaction to a price change along a product's demand curve is known to be elastic (Ep 1) , Assume that that the $price increases for this product with an elastic demand. Under these conditions, total revenues ($P x Qd) received by a firm will decrease.

Question

The reaction to a price change along a product's demand curve is known to be elastic (Ep > 1) , Assume that that the $price increases for this product with an elastic demand. Under these conditions, total revenues ($P x Qd) received by a firm will decrease.

Quizplus · Accepted Answer

When a Price-Elastic demand occurs, then the proportional decrease in quantity demanded is larger than the proportional increase in price.

The Reaction to a Price Change Along a Product's Demand