When a demand curve is "inelastic,"
A. total revenues go down if price goes down
B. total revenues go down if price goes up
C. total revenues stay the same if price goes down
D. total revenues stay the same if price goes up
E. total revenues go up if price goes down
Answer: (A) Price multiplied by quantity demanded equals total revenues. When a demand curve is inelastic, small changes in price do not cause a change in the quantity demanded. Therefore, if the price goes up, so will total revenues. Similarly, if price goes down, revenues too would decline since quantity demanded remains unchanged. In other words, when the demand is inelastic, both changes in price and revenues move in the same direction (up or down). Only (A) correctly reflects the concept of inelastic demand.