Exercise-2 on Elasticity and Expenditure/Revenue: Solutions

Question: In a scenario of "Housing War", the price of a luxury houses falls 25%.
Does luxury house real estates’ total revenue rise or fall?

Solutions:
Expenditure = P × Q
The fall in P will reduce revenue, however Q rises, which raises revenue.
It is known that in this case demand is elastic, Q will increase more than 25%, so revenue rises.


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Date of last modification: 2019