Assume that you own a small boutique hotel.In an attempt to raise revenue, you reduce your rates by 20 percent.However, your revenue falls.What does this indicate about the demand for your boutique hotel rooms?
A)Boutique hotel rooms are inferior goods.
B)Demand is inelastic.
C)The demand curve for your hotel rooms is vertical.
D)Demand is elastic.

Question

Quizplus · Accepted Answer

The fall in revenue despite a price reduction indicates that the demand is inelastic, meaning that the percentage decrease in price led to a smaller percentage increase in quantity demanded.

Assume That You Own a Small Boutique Hotel