Introduction to Economics 1 Deneme Sınavı Sorusu #1256883
When the demand is elastic (If we are on the elastic portion of demand curve), what would be the effect of a price increase or price hike on the total revenue from the sales?
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An increase in price causes total revenue to decrease, |
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An increase in price causes total revenue to increase, |
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An increase in price does not cause total revenue to change, |
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An increase in price causes total revenue to decrease for normal goods but increases for Veblen goods, |
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An increase in price causes total revenue to decrease for Giffen goods but increase for normal goods. |
Price Elasticity-Total Revenue Relationship with a Linear Demand Curve
When the demand is elastic (If we are on the elastic portion of demand curve), then Price elasticity of demand is greater than 1, ?P d ( >1), in case of a price increase or price hike, Percentage change in Quantity>Percentage change in Price. The decrease in total revenue from lower Quantity is greater than the increase in total revenue from higher Price, so total revenue from sales falls.
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