{"id":199176,"date":"2025-03-10T19:59:16","date_gmt":"2025-03-10T19:59:16","guid":{"rendered":"https:\/\/learnexams.com\/blog\/?p=199176"},"modified":"2025-03-10T19:59:17","modified_gmt":"2025-03-10T19:59:17","slug":"when-demand-is-inelastic-total-revenue-goes-down-in-proportion-to-a-price-increase","status":"publish","type":"post","link":"https:\/\/www.learnexams.com\/blog\/2025\/03\/10\/when-demand-is-inelastic-total-revenue-goes-down-in-proportion-to-a-price-increase\/","title":{"rendered":"When demand is inelastic, total revenue goes down in proportion to a price increase"},"content":{"rendered":"\n<p>When demand is inelastic, total revenue goes down in proportion to a price increase.<\/p>\n\n\n\n<p>a. true<\/p>\n\n\n\n<p>b. false<\/p>\n\n\n\n<p><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-ast-global-color-6-color\"><strong>The correct answer and explanation is :<\/strong><\/mark><\/p>\n\n\n\n<p>The correct answer is:<\/p>\n\n\n\n<p><strong>b. false<\/strong><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Explanation:<\/h3>\n\n\n\n<p>When demand is <strong>inelastic<\/strong>, the percentage change in quantity demanded is <strong>less than<\/strong> the percentage change in price. This means that consumers are relatively unresponsive to price changes. The price elasticity of demand in this case is <strong>less than 1<\/strong> (i.e., ( |E_d| &lt; 1 )).<\/p>\n\n\n\n<p>In the case of an <strong>inelastic demand<\/strong>, when the price of a good <strong>increases<\/strong>, the decrease in quantity demanded is <strong>small<\/strong> compared to the price increase. As a result, <strong>total revenue (TR) actually increases<\/strong>, not decreases.<\/p>\n\n\n\n<p>Total revenue is calculated as:<br>[<br>TR = P \\times Q<br>]<br>where:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>P<\/strong> = price of the good<\/li>\n\n\n\n<li><strong>Q<\/strong> = quantity demanded<\/li>\n<\/ul>\n\n\n\n<p>For inelastic demand:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>If <strong>price increases<\/strong>, quantity demanded falls <strong>slightly<\/strong> \u2192 <strong>TR increases<\/strong><\/li>\n\n\n\n<li>If <strong>price decreases<\/strong>, quantity demanded rises <strong>slightly<\/strong> \u2192 <strong>TR decreases<\/strong><\/li>\n<\/ul>\n\n\n\n<p>This happens because consumers are not very sensitive to price changes, often due to a lack of substitutes or because the good is a necessity (e.g., gasoline, medicine).<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Example:<\/h3>\n\n\n\n<p>Suppose the price of a life-saving drug increases from <strong>$10 to $12<\/strong>, and as a result, quantity demanded falls from <strong>100 units to 95 units<\/strong>.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Before price increase:<\/strong><\/li>\n\n\n\n<li>( TR = 10 \\times 100 = 1000 )<\/li>\n\n\n\n<li><strong>After price increase:<\/strong><\/li>\n\n\n\n<li>( TR = 12 \\times 95 = 1140 )<\/li>\n<\/ul>\n\n\n\n<p>Since total revenue increased after the price increase, this confirms that demand is inelastic.<\/p>\n\n\n\n<p>Thus, the statement <strong>&#8220;total revenue goes down in proportion to a price increase when demand is inelastic&#8221;<\/strong> is <strong>false<\/strong>\u2014in reality, total revenue increases.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>When demand is inelastic, total revenue goes down in proportion to a price increase. a. true b. false The correct answer and explanation is : The correct answer is: b. false Explanation: When demand is inelastic, the percentage change in quantity demanded is less than the percentage change in price. This means that consumers are [&hellip;]<\/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-199176","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/199176","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=199176"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/199176\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=199176"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=199176"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=199176"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}