When demand is relatively inelastic, a 5% increase in price will:
A)increase total revenue by more than 5%.
B)increase total revenue by less than 5%.
C)decrease total revenue by more than 5%.
D)decrease total revenue by less than 5%.

Question

When demand is relatively inelastic, a 5% increase in price will:
A)​increase total revenue by more than 5%.
B)​increase total revenue by less than 5%.
C)​decrease total revenue by more than 5%.
D)​decrease total revenue by less than 5%.

Quizplus · Accepted Answer

When demand is relatively inelastic, a change in price will result in a proportionally smaller change in quantity demanded. Therefore, a 5% increase in price will lead to a less than 5% decrease in quantity demanded, which results in a less than 5% decrease in total revenue. Thus, total revenue will increase by less than 5%.

When Demand Is Relatively Inelastic, a 5% Increase in Price