University of Central Florida (UCF) ECO2023 Principles of Microeconomics Final Practice Exam

Question: 1 / 400

If the demand for a product is inelastic at a given price, how will a change in price affect total revenue?

Total revenue will remain unchanged

Total revenue will change in the same direction as price

When demand for a product is inelastic, it means that consumers are not very responsive to changes in price. This characteristic of inelastic demand indicates that a percentage change in price will result in a smaller percentage change in quantity demanded.

As a result, when the price of an inelastic good increases, the total revenue tends to increase because the decrease in quantity demanded is proportionally less than the increase in price. Conversely, if the price decreases, total revenue would decline since the increase in quantity demanded would not be sufficient to offset the lower price.

Understanding this concept is crucial in microeconomics, especially for businesses and policymakers who aim to predict how changes in pricing strategies will affect their revenues. Hence, the correct answer reflects that total revenue will change in the same direction as price when dealing with inelastic demand.

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Total revenue will decrease as price decreases

Total revenue will increase as price decreases

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