{"id":195634,"date":"2025-02-28T14:16:25","date_gmt":"2025-02-28T14:16:25","guid":{"rendered":"https:\/\/learnexams.com\/blog\/?p=195634"},"modified":"2025-02-28T14:16:27","modified_gmt":"2025-02-28T14:16:27","slug":"if-demand-is-elastic","status":"publish","type":"post","link":"https:\/\/www.learnexams.com\/blog\/2025\/02\/28\/if-demand-is-elastic\/","title":{"rendered":"If demand is elastic"},"content":{"rendered":"\n

If demand is elastic, then<\/p>\n\n\n\n

Group of answer choices<\/p>\n\n\n\n

a decrease in price will have no effect on total revenue<\/p>\n\n\n\n

an increase in price will increase total revenue<\/p>\n\n\n\n

a decrease in price will reduce total revenue<\/p>\n\n\n\n

an increase in price will reduce total revenue<\/p>\n\n\n\n

The Correct Answer and Explanation is :<\/strong><\/mark><\/p>\n\n\n\n

Correct Answer:<\/strong><\/h3>\n\n\n\n

An increase in price will reduce total revenue.<\/strong><\/p>\n\n\n\n

\n\n\n\n

Explanation:<\/strong><\/h3>\n\n\n\n

Elasticity of demand measures how much the quantity demanded of a good responds to a change in price. When demand is elastic<\/strong>, it means that the quantity demanded is highly responsive<\/strong> to price changes. This occurs when the price elasticity of demand (PED) is greater than 1 (|PED| > 1), meaning a small percentage change in price results in a larger percentage change in quantity demanded.<\/p>\n\n\n\n

Impact on Total Revenue<\/strong><\/h4>\n\n\n\n

Total revenue (TR) is calculated as:
[
TR = \\text{Price} \\times \\text{Quantity}
]<\/p>\n\n\n\n

    \n
  • If demand is elastic, consumers are very sensitive to price changes.<\/li>\n\n\n\n
  • When price increases<\/strong>, the decrease in quantity demanded is proportionally larger<\/strong> than the increase in price, leading to an overall drop in total revenue<\/strong>.<\/li>\n\n\n\n
  • When price decreases<\/strong>, the increase in quantity demanded is proportionally larger<\/strong> than the decrease in price, leading to an overall increase in total revenue<\/strong>.<\/li>\n<\/ul>\n\n\n\n

    Example Scenario<\/strong><\/h4>\n\n\n\n

    Consider a product with elastic demand, such as luxury goods or restaurant meals. Suppose a restaurant raises the price of a meal from $10 to $12:<\/p>\n\n\n\n

      \n
    • If demand is elastic, many customers will stop dining there or reduce their visits.<\/li>\n\n\n\n
    • The loss in customers is greater than the increase in price per meal.<\/li>\n\n\n\n
    • As a result, the restaurant\u2019s total revenue falls<\/strong>.<\/li>\n<\/ul>\n\n\n\n

      Thus, when demand is elastic, increasing prices reduces total revenue, while decreasing prices increases it.<\/p>\n\n\n\n

      \n\n\n\n

      Generating Image<\/strong><\/h3>\n\n\n\n

      I will now generate an image illustrating the concept of elastic demand and its impact on total revenue.<\/p>\n\n\n\n

      I am unable to generate an image at this time because you’ve hit your daily maximum number of images. To ensure the best experience for everyone, we have rate limits in place. Please wait for the next day before generating more images. Your daily maximum will reset in 9 hours and 44 minutes.<\/p>\n\n\n\n

      However, you can visualize the concept using a simple graph:<\/p>\n\n\n\n

        \n
      • Draw a downward-sloping demand curve labeled “Elastic Demand.”<\/li>\n\n\n\n
      • Mark a point where the price increases, showing a sharp drop in quantity demanded and a decrease in total revenue.<\/li>\n\n\n\n
      • Mark another point where the price decreases, illustrating a significant increase in quantity demanded and an increase in total revenue.<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"

        If demand is elastic, then Group of answer choices a decrease in price will have no effect on total revenue an increase in price will increase total revenue a decrease in price will reduce total revenue an increase in price will reduce total revenue The Correct Answer and Explanation is : Correct Answer: An increase […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-195634","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/195634","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=195634"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/195634\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=195634"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=195634"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=195634"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}