PRC-3 · Chapter 11 · Question 3 of 57
If a firm lowers the price of its product, and as a result, its total revenue (total expenditure by consumers) remains exactly the same, what does this indicate about the product's price elasticity of demand?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) It is unitary elastic
Explanation
According to the total expenditure method, if a change in price causes a proportionate change in quantity such that total expenditure remains perfectly constant, demand is unit elastic (PED = 1).
More Elasticity of Demand and Supply MCQs
- Q5When the price of cinema tickets rises by 10%, the demand for streaming service subscriptions rises by 15%. This results in a positive…
- Q6If the cross-price elasticity between 'Product X' and 'Product Y' is profoundly negative (-2.8), what does this mean practically for…
- Q7Which of the following factors would make the demand for a specific consumer product highly price-elastic?
- Q8A government imposes a heavy sales tax on a product whose demand is incredibly inelastic (like tobacco). Who will bear the majority of the…
- Q9Why is the price elasticity of supply generally much higher (more elastic) in the 'Long Run' compared to the 'Very Short Run'?