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Demand for a good is elastic at the current price. According to the source, what happens to total revenue if the seller raises the price?
ATotal revenue falls, since quantity drops faster than price rises
BTotal revenue rises, since price rises faster than quantity falls
CTotal revenue stays exactly the same as before
DTotal revenue always falls all the way to zero
Answer & Solution
Correct answer: A. Total revenue falls, since quantity drops faster than price rises
1. Total revenue is price multiplied by quantity sold.
2. When demand is elastic, the percentage change in quantity demanded is larger than the percentage change in price.
3. Table 5.3 states that a given percentage rise in price will be more than offset by a larger percentage fall in quantity, so total revenue falls.
4. This rules out option B, which describes the inelastic case instead.
5. Revenue falling does not mean it collapses to zero, only that it is lower than before the price rise, ruling out option D.
_Source: OpenStax Principles of Microeconomics for AP Courses (CC BY 4.0), Ch 5 "Elasticity", section 5.3 | Elasticity and Pricing_
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