Practice question · True or false
A firm facing elastic demand can increase revenue by raising its price.
Hints
- Which way does quantity move, and by how much?
- Elastic means quantity responds more than proportionally.
Show the answer
False
Why
False. With elastic demand quantity falls proportionally more than price rises, so revenue drops; it is inelastic demand where a price rise raises revenue. This is why cigarette taxes raise revenue and why an airline discounting a leisure route can raise it too, the elasticity decides the direction.
Practise Demand and Elasticity
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