Question

David sells apples. The price of apples rise and the total revenue from selling apples increases. A. All of the other answers are incorrect B. It can be concluded that the demand for the product is elastic. C. It can be concluded that the supply of the product is elastic. D. It can be concluded that the demand for the product is inelastic. E. It can be concluded that the supply of the product is inelastic.

Answer 1

Formula :

(i) Total Revenue(R) = P*Q, where P = Price and Q = Quantity Demand

(ii) % change in (A*B) = % change in (A) + % change in (B)

Thus TR = P*Q => % change in (TR) = % change in (P) + % change in (Q)

Now As P increases, TR also increases => % change in P > 0 and % change in TR > 0

=> % change in (TR) = % change in (P) + % change in (Q) > 0

=> % change in (P) > - (% change in (Q))

=> % change in Q / % change in P > -1

Elasticity of demand(e) = % change in Q / % change in P

=> e = % change in Q / % change in P > -1

=> e > -1

As e is always negative because as P increases Q decreases and thus if % change in P is positive then % change in Q is negative and vice versa.

Thus, here we have -1 < e < 0.

Demand is inelastic if -1 < e < 0 and thus here demand is inelastic.

Hence, the correct answer is (D) It can be concluded that the demand for the product is inelastic.