Answer to Question #126829 in Microeconomics for Aamir

Question

How the following changes in price will affect the total revenue ? (i.e, would total revenue increased, decrease or remain unchanged). Draw graph by considering some examples from your daily life for each case and give an explanation in your own words.

i) Price falls and demand is inelastic

ii) ) Price rises and demand is elastic

iii) Price rises and demand is inelastic

iv) Price falls and demand is elastic

v) Price falls and demand is unit elastic

Answer 1

i) Price falls and demand is inelastic, as a result total revenue will decrease.

ii) Price rises and demand is elastic, as a result total revenue will decrease.

iii) Price rises and demand is inelastic, as a result total revenue will increase.

iv) Price falls and demand is elastic, as a result total revenue will decrease.

v) Price falls and demand is unit elastic, as a result total revenue will remain unchanged.