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JAMB Economics 1992 Question 16

Question 16

Elasticity

If demand is relatively inelastic and sellers are able to raise the price of their commodity, then there will be a

  1. A.fall in both quantity demanded and total revenue
  2. B.fall in the quantity demanded and a rise in total revenue
  3. C.fall in the quantity demanded and a rise in marginal revenue
  4. D.rise in both the quantity demanded and the marginal revenue
Show the answer and explanation

Answer: B (fall in the quantity demanded and a rise in total revenue)

Explanation

With inelastic demand, quantity falls by a smaller percentage than price rises, so sales fall a little but total revenue rises.