Question : Statement 1: If the price of a good increases, and its total revenue decreases, demand for that good is elastic.
Statement 2: Elastic demand implies that an increase in price leads to a proportionately larger decrease in quantity demanded, resulting in lower total revenue.
Option 1: Both statements are true.
Option 2: Both statements are false.
Option 3: Statement 1 is true, and statement 2 is false.
Option 4: Statement 1 is false, and statement 2 is true.
Correct Answer: Both statements are true.
Solution : The correct answer is (A) Both statements are true.
Statement 1: If the price of a good increases, and its total revenue decreases, demand for that good is elastic.
This statement is true. Elastic demand means that the quantity demanded is highly responsive to changes in price. If an increase in price leads to a decrease in total revenue, it indicates that the quantity demanded has decreased significantly, suggesting elastic demand.
Statement 2: Elastic demand implies that an increase in price leads to a proportionately larger decrease in quantity demanded, resulting in lower total revenue.
This statement is also true. Elastic demand implies that a change in price results in a proportionately larger change in quantity demanded in the opposite direction. If the price increases, and the demand is elastic, the decrease in quantity demanded will be proportionately larger than the increase in price, leading to lower total revenue.
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