## Understanding the Question You’re given a demand curve and asked what happens to **total revenue** when the price drops from $10 to $2. The question wants you to use the areas on the graph (**A, B, C, D**) to describe the change, and also asks about whether demand is **elastic or inelastic**. --- ### **Step 1: Calculate Total Revenue** Total Revenue = Price × Quantity - **At $10:** - Price = $10 - Quantity = 1 - Total Revenue = $10 × 1 = **$10** (This is area A) - **At $2:** - Price = $2 - Quantity = 7 - Total Revenue = $2 × 7 = **$14** (This is area B + C) --- ### **Step 2: Areas on the Graph** - **Area A:** Revenue at the high price ($10, Q=1) - **Areas B + C:** Revenue at the lower price ($2, Q=7) So when the price drops, revenue changes from area A to areas B + C. --- ### **Step 3: Elasticity** - **If total revenue increases** when price falls, demand is **elastic** - **If total revenue decreases** when price falls, demand is **inelastic** Here, revenue **increases** from $10 to $14, so **demand is elastic**. --- ### **Step 4: Matching to the Choices** The correct answer is: > **Increases from area A to areas B + C and demand is elastic.** --- ## **Summary Table** | Price | Quantity | Total Revenue (Area) | |-------|----------|---------------------| | $10 | 1 | $10 (A) | | $2 | 7 | $14 (B + C) | --- ## **Final Answer** > **Decreases from area A to areas B + C and demand is elastic.** But actually, it **increases** (not decreases), so be careful with wording. The correct answer is: > **Increases from area A to areas B + C and demand is elastic.** --- Let me know if you need more help with this concept!