Elastic Demand and Revenue Effects

Steps:

• Elastic demand means percentage change in quantity demanded exceeds percentage change in price.
• Price decrease causes quantity demanded to rise by a greater percentage than the price fall.
• Total revenue equals price times quantity; with elastic demand, the larger quantity increase outweighs the price drop.
• Thus, total revenue rises when price falls for elastic goods.

Why B is correct:

• For elastic demand (|E| > 1), a price fall leads to a proportionally larger quantity rise, increasing total revenue (TR = P × Q).

Why the others are wrong:

• A: Revenue falls, but elastic demand causes revenue to rise with a price decrease.
• C: Quantity rises by a smaller percentage, describing inelastic demand, not elastic.
• D: Quantity rises by a smaller percentage (inelastic trait) and revenue rises, but inelastic demand causes revenue to fall with a price decrease.

Final answer: B