Producers' total revenue will decrease if price rises and demand is elastic.

Producers' total revenue will decrease if price rises and demand is elastic.

• A. The price rises and demand is inelastic.
• B. Income increases and the good is a normal good.
• C. The price rises and demand is elastic.
• D. Income falls and the good is an inferior good.

Answer: (C)

Total revenue depends on both price and the quantity sold, and elasticity tells how responsive quantity is to price changes. When demand is elastic (the percentage drop in quantity demanded is larger than the percentage rise in price), a price increase leads to a proportionally larger fall in quantity than the rise in price, so total revenue falls. For example, if price rises by 10% and demand is elastic with elasticity around 2, quantity falls about 20%, making revenue drop (10% price increase vs 20% drop in quantity). In contrast, if demand were inelastic, the quantity would fall less than the price rises, boosting revenue. The other options involve income effects or normal/inferior goods, which don’t directly explain why revenue would fall when price goes up and demand is elastic. This is why the best fit is the price rises and demand is elastic.

Total revenue depends on both price and the quantity sold, and elasticity tells how responsive quantity is to price changes. When demand is elastic (the percentage drop in quantity demanded is larger than the percentage rise in price), a price increase leads to a proportionally larger fall in quantity than the rise in price, so total revenue falls. For example, if price rises by 10% and demand is elastic with elasticity around 2, quantity falls about 20%, making revenue drop (10% price increase vs 20% drop in quantity).

In contrast, if demand were inelastic, the quantity would fall less than the price rises, boosting revenue. The other options involve income effects or normal/inferior goods, which don’t directly explain why revenue would fall when price goes up and demand is elastic. This is why the best fit is the price rises and demand is elastic.