Certified Management Accountant 2025 – 400 Free Practice Questions to Pass the Exam

An increase in price within the inelastic range of demand leads to an increase in total revenue. Inelastic demand refers to a situation where the percentage change in quantity demanded is less than the percentage change in price. This means that consumers are relatively unresponsive to price changes; they will continue to purchase a similar quantity of a good or service even if the price increases.

When the price increases in the inelastic range, the increase in price outweighs the decrease in the quantity sold, resulting in higher overall revenue for the seller. Essentially, because the quantity demanded does not drop significantly, the additional revenue from the higher price more than compensates for any revenue lost from selling fewer units.

In contrast, in the elastic range of demand, total revenue would decrease with a price increase, as the reduction in quantity demanded would be proportionally larger. Understanding the characteristics of inelastic demand and how total revenue behaves in response to price changes is crucial for effective pricing strategies and revenue management.