Question

If a good had price elasticity greater than one then __________.

• A. demand is unit elastic and a change in price does not affect sellers revenue
• B. demand is elastic and a change in price causes sellers' revenue to change in the opposite direction
• C. demand is inelastic and a change in price causes sellers' revenue to change in the same direction
• D. none of the above is correct

Answer 1

The correct option is B demand is elastic and a change in price causes sellers' revenue to change in the opposite direction

When elasticity of demand is greater than $1$, demand is elastic and seller's revenue changes in the opposite direction. This is because as per total outlay method, total expenditure moves in the opposite direction as compared to price, since price and demand share an inverse relationship.