When total revenue increases as price falls, the coefficient of price elasticity of demand is

Analyze the question: It asks about the value of price elasticity of demand (PED) when a fall in price leads to a rise in total revenue.

Concept: Total revenue (TR) = Price × Quantity. When price falls, two things happen:

• Revenue per unit falls (a negative effect).
• Quantity demanded rises (a positive effect).

Which effect wins depends on elasticity:

| PED (ignoring sign) | Price falls → TR | |---|---| | Greater than 1 (elastic) | TR increases | | Equal to 1 (unitary) | TR unchanged | | Less than 1 (inelastic) | TR decreases | | Zero (perfectly inelastic) | TR decreases |

Worked example:

• Price = ₦100, quantity = 50, so TR = ₦5,000.
• Price falls to ₦80 and quantity rises to 70, so TR = ₦5,600. TR has increased.
• % change in quantity = (20/50) × 100 = 40%
• % change in price = (20/100) × 100 = 20%
• PED = 40 / 20 = 2, which is greater than 1.

So demand is elastic: the percentage rise in quantity demanded is larger than the percentage fall in price, which is why revenue rises.

Answer: A. greater than one.

Tip: Remember "Price and TR move in opposite directions when demand is elastic." If price falls and TR rises, the demand is elastic (PED > 1). If price and TR move in the same direction, demand is inelastic.