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JAMB Economics 1993 Question 16

Question 16

Elasticity

If the price elasticity of demand for a certain commodity is less than unity, then

  1. A.an increase in the price of the commodity will raise the total revenue of the producer
  2. B.an increase in price leaves the total revenue unchanged
  3. C.a decrease in price raises the total revenue of the supplier
  4. D.a decrease in price leaves the total revenue constant
Show the answer and explanation

Answer: A (an increase in the price of the commodity will raise the total revenue of the producer)

Explanation

With inelastic demand, quantity falls proportionally less than price rises, so total revenue increases.