If the short run elasticity of demand for widgets is 0.7 and the long run elasticity of demand for widgets is 1.5, an increase in price will ____ total revenue in the short run and ____ total revenue in the long run.
A)Increase; increase.
B)Increase; decrease.
C)Decrease; increase.
D)Decrease; decrease.

Question

If the short run elasticity of demand for widgets is 0.7 and the long run elasticity of demand for widgets is 1.5, an increase in price will ____ total revenue in the short run and ____ total revenue in the long run.
A)​Increase; increase.
B)​Increase; decrease.
C)​Decrease; increase.
D)​Decrease; decrease.

Quizplus · Accepted Answer

In the short run, with an elasticity of 0.7 (inelastic demand), an increase in price leads to a smaller percentage decrease in quantity demanded, thus increasing total revenue. In the long run, with an elasticity of 1.5 (elastic demand), an increase in price leads to a larger percentage decrease in quantity demanded, thus decreasing total revenue.

If the Short Run Elasticity of Demand for Widgets Is