Practice question · Multiple choice
A rail operator raises fares and its revenue falls. What does that reveal about the elasticity it faces, and where is it on its demand curve?
Hints
- Revenue is price times quantity. If price rose and revenue fell, which factor moved more?
- Ask where on a linear demand curve elasticity exceeds one.
Show the answer
C. Demand is elastic: the drop exceeded the price rise
Why
Revenue moving against price is the definition of elastic demand, and on a linear curve that region is the high-price upper half. This is why the revenue test is the practical way to measure elasticity, you observe the direction of the revenue change rather than estimating a curve.
Practise Demand and Elasticity
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More questions on Demand and Elasticity
- If εp = -0.5 and price rises 20%, quantity falls by:
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- A firm facing elastic demand can increase revenue by raising its price.
- Order the logic of deriving a demand curve.
- Match each elasticity type to its formula.
- Sort by cross-price elasticity sign.