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The price elasticity of demand for a product as its current price level is inelastic. What will happen if the price of the product is reduced?
A. Total revenue will fall and profit will fall.
B. Total revenue will fall and profit may either increase or fall.
C. Total revenue will increase and profit will increase.
D. Total revenue will increase and profit Noida increase of fall.
Sir, in which I did not understand how option A is correct, because in my perspective I think options c should be correct as because when we have inelastic demand then there is a major change in price lead towards the minor change in demand. So In this perspective if price has reduced then then revenue will increase in profit will also increase.Following statement have been made about the price elasticity of demand for the product.
1. Price elasticity of demand may be reduced by means of advertising and sales promotion activities.
2. When elasticity of demand is very inelastic customers are not sensitive to enterprise or advertising and sales promotion activities.
Which of the above is are correct?
A. 1only
B. 2 only
C. Neither 1 nor 2
D. Both 1 and 2
Sir in this question option A is correct can you explain how stat 1 is correct and stat 2 is false?First question:
If it is inelastic, then reducing the price will not affect the demand. If you sell the same quantity at a lower price then automatically there is lower revenue and lower profit.
Second question:
We normally expect that higher prices will reduce the demand if there is elasticity. If there is a lot of advertising etc then it might be possible to have a higher price but keep the demand from falling as much.
If it is very inelastic, then it suggests people are going to still buy the product whatever the price is (maybe it is an essential product) and therefore it won’t make much difference whether or not they advertise.
Okay sir got it. But if in inelastic demand customers are not sensitive to advertising and promotion then statement 2 shouldn’t be correct in question 2?
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