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Correct Answer: demand for manuchos is elastic in terragonia, and inelastic in goratania.
the difference in how the price increase of manuchos affects total revenue in goratania and terragonia can be explained by the concept of price elasticity of demand. price elasticity of demand measures how sensitive the quantity demanded of a good is to a change in its price. essentially, it tells us how much the quantity demanded will decrease when the price increases, or vice versa.
in goratania, when the price of manuchos was raised by one lonaca, the total revenue increased. this suggests that the quantity demanded did not decrease significantly with the increase in price. in economic terms, this behavior is described as inelastic demand. when demand is inelastic, consumers continue to purchase approximately the same amount of a product even when the price increases. therefore, the increase in price does not lead to a proportionate decrease in quantity demanded, resulting in higher total revenue.
conversely, in terragonia, the same price increase led to a decrease in total revenue. this indicates that the quantity of manuchos demanded decreased significantly as a result of the price hike. this type of demand behavior is known as elastic demand. when demand is elastic, consumers are highly responsive to changes in price; a slight increase in price results in a substantial decrease in the quantity demanded. thus, despite the higher price per manucho, the total revenue falls because the decrease in quantity demanded is proportionately greater than the increase in price.
the discrepancy between the reactions in goratania and terragonia to the price increase can therefore be attributed to the different elasticity of demand for manuchos in each region. in goratania, the demand for manuchos is inelastic, meaning people's purchase habits are not greatly affected by price changes. in terragonia, however, the demand is elastic, indicating that consumers are more price-sensitive and reduce their purchases when prices rise. this fundamental difference in consumer responsiveness to price changes explains why revenue trends differed between the two regions after the price adjustment. thus, the correct explanation for the observed phenomenon is that demand for manuchos is elastic in terragonia and inelastic in goratania.
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