Question

If marijuana were legalized, it is likely that there would be an increase in the demand for marijuana. If demand for marijuana is inelastic and the supply of marijuana is perfectly elastic, this will result in a. the same price but lower total revenue from marijuana sales. b. higher prices and higher total revenue from marijuana sales. c. higher prices but lower total revenue from marijuana sales. d. the same price and higher total revenue from marijuana sales.

Answer 1

Answer:

C. Higher prices but lower total revenue from marijuana sales.

Explanation:

The above scenario totally explains inelastic demand. Inelastic demand is when the buyer’s demand does not change as much as the price changes. When price increases by 20% and demand decreases by only 1%, demand is said to be inelastic.

When the price increases, people will still purchase roughly the same amount of the good or service as they did prior to the increase because their needs stay the same. A similar situation exists when there is a decrease in price demand will not increase substantially because consumers only have a limited need for the product.