Final answer:
The assertion that a price increase always improves all aspects of performance when demand is inelastic is false. Inelastic demand leads to an increase in total revenue with a price increase, but it does not uniformly improve every aspect of performance. Factors like customer satisfaction and market share might be affected differently.
Step-by-step explanation:
The statement that 'when a price is inelastic, a price increase improves all aspects of performance' is false. Price elasticity of demand measures how much the quantity demanded of a good or service changes in response to a change in price. When demand is inelastic, it means that the quantity demanded does not change significantly with a change in price. If demand is inelastic at the original quantity level and the price is increased, total revenue will increase because the percentage increase in price will be greater than the percentage decrease in quantity sold.
However, it does not mean that all aspects of performance improve. It primarily impacts total revenue, and other aspects such as customer satisfaction or market share are not guaranteed to improve and could potentially be negatively affected. Additionally, it's important to understand that if demand has a unitary elasticity, total revenue remains unchanged whether prices are increased or decreased. Moreover, demand for habit-forming goods like cigarettes which are generally price inelastic implies that consumers will continue to purchase them despite price increases.
It's also relevant to consider the level of price and income levels of consumers. Higher-priced goods tend to exhibit greater elasticity than low-priced items, such as luxury goods versus staple items. In the case of consumers with higher incomes, price elasticity for goods tends to be lower because their purchasing decisions are less affected by price changes than those of consumers with lower incomes.