Price Elasticity and Total Revenue Change

Steps:

• Price falls by 5%, so %ΔP = -5%.
• Total revenue falls by 5%, so %ΔTR = -5%.
• %ΔTR ≈ %ΔP + %ΔQ, so -5% ≈ -5% + %ΔQ, meaning %ΔQ ≈ 0%.
• Elasticity = %ΔQ / %ΔP ≈ 0% / -5% = 0 (perfectly inelastic).

Why D is correct:

• Zero elasticity means quantity demanded does not change with price, so %ΔQ = 0; thus, %ΔTR = %ΔP, matching the 5% drops in both.

Why the others are wrong:

• A: Elastic demand (|E| > 1) would increase TR when price falls, but TR decreases.
• B: Infinite elasticity means horizontal demand curve; quantity would change infinitely, not keeping TR tied to price change.
• C: Unitary elasticity (|E| = 1) keeps TR constant when price changes, but TR falls here.

Final answer: D. zero