If the short run elasticity of demand for widgets is 0.7 and the long run elasticity of demand for widgets is 1.5, a decrease 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, a decrease 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), a decrease in price will decrease total revenue because the percentage increase in quantity demanded is less than the percentage decrease in price. In the long run, with an elasticity of 1.5 (elastic demand), a decrease in price will increase total revenue because the percentage increase in quantity demanded is greater than the percentage decrease in price.

If the Short Run Elasticity of Demand for Widgets Is