ACCA PM · Chapter 7 · Question 7 of 10
A company increases the price of its product by 10%, and the quantity sold falls by 25%. Which of the following is correct?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Demand is price elastic and total revenue falls by 17.5%
Explanation
Price elasticity of demand = % change in quantity / % change in price = -25% / 10% = -2.5. Its absolute value exceeds 1, so demand is elastic. New revenue = 1.10 x 0.75 = 0.825 of the original, a fall of 17.5%.
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