If the price elasticity of demand coefficient is (-)1, total revenue will remain constant when price rises or price falls.

Question

If the price elasticity of demand coefficient is (-)1,  total revenue will remain constant when price rises or price falls.

BlackTom AI · Accepted Answer

Begin by restating the question in my own words to ensure understanding: If the price elasticity of demand is -1, does total revenue stay the same when price changes up or down?
Option A: True. This aligns with the concept of unit elastic demand, where the percentage change in quantity demanded exactly offsets the percentage change in price. Since ε = %ΔQ / %ΔP = -1, we have %ΔQ = -%ΔP. Adding these changes gives %ΔR ≈ %ΔP + %ΔQ = %ΔP - %ΔP = 0, implying total revenue is unchanged for small (infinitesimal) price changes along the demand curve. However, it is important to note that this is a marginal (local) result; for large or discrete price changes, total revenue may still change due to the curvature of the demand curve and other real-world factors, but the standard teaching is that unit-elastic demand yields approximately constant revenue for small changes.
Option B: False. This would be correct if elasticity were not exactly -1. If elasticity magnitude is greater than 1 (elastic), a price rise would reduce revenue and a price fall would increase revenue, or vice versa depending on the direction. If elasticity magnitude is less than 1 (inelastic), price rises increase revenue and price falls decrease revenue. Therefore, asserting constant revenue for all price changes regardless of direction is inaccurate unless the change is infinitesimally small and the elasticity remains precisely -1.
In summary, the statement is generally considered true in the standard unit-elastic framework for small price changes, but it is not an absolute rule for all possible price changes due to the limitations of the linear approximation and potential deviations in real markets.

If the price elasticity of demand coefficient is (-)1, total revenue will remain constant when price rises or price falls.

View Explanation

Log in for full answers

Similar Questions

If a company needs to raise the prices of some its products, it should choose to raise the prices of Blank ______ products because relatively fewer customers will stop buying the product as a result.

Calculate the price elasticity of demand for a change in price from $10.00 to $15.00. Price Quantity $10.00 20 $15.00 15

For substitutes, the cross-price elasticity is _, the own price elasticity is _.

Several companies produce latex gloves that are used in a variety of different industries. If one of the glove manufacturers decreases its price by just a few percentage points, it will result in a significant increase in quantity demanded. The demand for latex gloves is:

More Practical Tools for Students Powered by AI Study Helper

Homework AI Solver

Stylized AI Paper Writer

Plagiarism Checker Assistant

Citation AI Academic Writing Tool

In-Class Translation Assistant

AI Note Generator

AI Quiz Answers

Past Exam Questions from University Test Bank

Smart Practice Assistant

Adaptive Practice

Making Your Study Simpler

If the price elasticity of demand coefficient is (-)1, total revenue will remain constant when price rises or price falls.

View Explanation

Log in for full answers

Similar Questions

If a company needs to raise the prices of some its products, it should choose to raise the prices of Blank ______ products because relatively fewer customers will stop buying the product as a result.

Calculate the price elasticity of demand for a change in price from $10.00 to $15.00. Price Quantity $10.00 20 $15.00 15

For substitutes, the cross-price elasticity is ___, the own price elasticity is ___.

Several companies produce latex gloves that are used in a variety of different industries. If one of the glove manufacturers decreases its price by just a few percentage points, it will result in a significant increase in quantity demanded. The demand for latex gloves is:

More Practical Tools for Students Powered by AI Study Helper

Making Your Study Simpler

For substitutes, the cross-price elasticity is _, the own price elasticity is _.