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If the demand for a good is elastic what is true?

Rationale

The quantity demanded responds substantially to changes in the price.

When demand for a good is elastic, it means that consumers are highly responsive to price changes, leading to significant changes in the quantity demanded. This characteristic of elastic demand is critical for businesses and policymakers as it influences pricing strategies and revenue forecasts.

A (The quantity demanded responds only slightly to changes in the price.) YOUR ANSWER

This statement describes inelastic demand, where consumers are less responsive to price changes. In cases of inelastic demand, significant price changes result in only small changes in quantity demanded, which contradicts the definition of elastic demand.

B (Price and total revenue move in the same direction.) YOUR ANSWER

This statement refers to the behavior of inelastic demand. For elastic demand, a decrease in price will lead to an increase in total revenue, and vice versa. Therefore, this option does not align with the properties of elastic demand, which entails that price and total revenue move in opposite directions.

C (Total revenue increases with a change in price in either direction.) YOUR ANSWER

This statement is misleading as it suggests that total revenue will always increase with price changes, which is not true for elastic demand. When demand is elastic, a decrease in price will increase total revenue, while an increase in price will decrease total revenue, showing that total revenue does not uniformly increase with price changes.

Conclusion

Understanding elastic demand is essential for effective market strategies, as it demonstrates that consumers will significantly alter their purchasing behavior in response to price fluctuations. The key takeaway is that when demand is elastic, the quantity demanded will substantially change, which is vital for businesses to optimize pricing and maximize revenue.

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