A price change causes the quantity demanded of a good to decrease by 20 percent, while the total revenue increased by 10 percent. The demand curve is:

• A. Elastic
• B. Unit-Elastic
• C. Inelastic
• D. Perfectly Elastic

Answer: (C)

Verified step by step guidance

1. Understand the relationship between price elasticity of demand and total revenue. When demand is inelastic, a price increase leads to an increase in total revenue.
2. Recall that price elasticity of demand (PED) is calculated as the percentage change in quantity demanded divided by the percentage change in price.
3. Given that the quantity demanded decreases by 20%, and total revenue increases by 10%, infer that the percentage change in price must be positive.
4. Since total revenue increases when quantity demanded decreases, this indicates that the demand is inelastic. Inelastic demand means that the percentage change in quantity demanded is less than the percentage change in price.
5. Conclude that the demand curve is inelastic because the increase in total revenue despite a decrease in quantity demanded suggests that the price effect dominates the quantity effect.