When demand is inelastic and price decreases:
A)the effect of the decrease in price on total revenue dominates the effect of the increase in quantity demanded on total revenue; overall total revenue declines.
B)the effect of the increase in quantity demanded on total revenue dominates the effect of the decrease in price on total revenue; overall total revenue increases.
C)the effects of the decrease in price on total revenue and the corresponding increase in quantity demanded on total revenue perfectly offset one another; overall total revenue remains unchanged.
D)quantity demanded and total revenue fall to zero.

Question

Quizplus · Accepted Answer

When demand is inelastic, there is a relatively small increase in quantity demanded in response to a decrease in price. Therefore, the decrease in price has a smaller effect on total revenue than the decrease in quantity demanded. Hence, the effect of the decrease in price on total revenue is dominated by the decrease in quantity demanded, resulting in an overall decline in total revenue.

When Demand Is Inelastic and Price Decreases