Suppose a jewelry store found that when it increased prices by 10 percent, sales revenue increased by 3 percent. Which of the following is true about the price elasticity of demand for the store’s goods?

 In the scenario described, where a jewelry store increased prices by 10 percent and sales revenue increased by 3 percent, we can infer that the price elasticity of demand for the store’s goods is inelastic.

The price elasticity of demand measures how much the quantity demanded of a good responds to a change in the price of that good. It is calculated by using the formula:

Price Elasticity of Demand (PED) = Percentage Change in Quantity Demanded / Percentage Change in Price

If the absolute value of PED is less than 1, demand is considered inelastic. This means that consumers are not very responsive to price changes; a price increase does not significantly decrease the quantity demanded. Conversely, if the absolute value of PED is greater than 1, demand is considered elastic; consumers are highly responsive to price changes, and a price increase will greatly decrease the quantity demanded.

Since the store sees an increase in sales revenue with a price increase, it suggests that the decrease in quantity demanded is not proportionally as large as the increase in price, leading to an increase in total revenue (since Revenue = Price x Quantity). This scenario therefore implies that the PED is less than 1, indicating inelastic demand.