The demand for a good is elastic if

The demand for a good is elastic if

• A. A decrease in price results in a decrease in total revenue.
• B. The good is a necessity.
• C. An increase in price results in an increase in total revenue.
• D. An increase in price results in a decrease in total revenue.

Answer: (D)

Elastic demand means consumers respond a lot to price changes—the percentage change in quantity demanded is larger than the percentage change in price. Because total revenue is price times quantity, when the price goes up but the quantity demanded falls by a larger percentage, total revenue falls. That’s why increasing the price leads to a decrease in total revenue under elastic demand. For example, if the price rises by 10% and the quantity demanded falls by 20%, total revenue drops even though the price is higher. This contrasts with inelastic demand, where a price increase would raise total revenue because quantity falls only a little. So the statement that matches elastic demand is that an increase in price results in a decrease in total revenue. The other scenarios describe conditions more aligned with inelastic demand or situations where price changes have the opposite effect on total revenue.

Elastic demand means consumers respond a lot to price changes—the percentage change in quantity demanded is larger than the percentage change in price. Because total revenue is price times quantity, when the price goes up but the quantity demanded falls by a larger percentage, total revenue falls. That’s why increasing the price leads to a decrease in total revenue under elastic demand.

For example, if the price rises by 10% and the quantity demanded falls by 20%, total revenue drops even though the price is higher. This contrasts with inelastic demand, where a price increase would raise total revenue because quantity falls only a little.

So the statement that matches elastic demand is that an increase in price results in a decrease in total revenue. The other scenarios describe conditions more aligned with inelastic demand or situations where price changes have the opposite effect on total revenue.