PRC-3 · Chapter 11 · Question 39 of 57
When a firm lowers the price of its product, it experiences a massive surge in quantity demanded that completely overwhelms the price cut, causing total revenue to increase. The demand here is:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Elastic
Explanation
If a price cut leads to an increase in total expenditure/revenue, the percentage increase in quantity outpaced the percentage drop in price, meaning demand is elastic.
More Elasticity of Demand and Supply MCQs
- Q41If the government imposes a new tax on a good with highly elastic demand, who will bear the majority of the tax burden (incidence)?
- Q42If a 5% increase in price causes absolutely no change in the quantity supplied of a good, the elasticity of supply is:
- Q43Which of the following products is likely to have the lowest price elasticity of demand?
- Q44What is the shape of a demand curve that has a strictly constant slope throughout?
- Q45If a geometric supply schedule has a price elasticity of supply exactly equal to 1 at all points, its graph will be: