Answer to Question #197967 in Microeconomics for Sikhumbuzo

Question

Examine the impact on total revenue in terms of an elastic demand curve and inelastic demand curve. use diagrams to motivate your answer

Answer 1

Price elasticity of demand is the ratio of percentage change in quantity demanded and percentage change in price. We calculate price elasticity of demand in different way like by mid point formula, by percentage formula, by derivative formula and also by Total revenue approach model.

When we consider about the elasticity in terms of total revenue then we get if price elasticity of demand is elastic that means Ed >1 then it means percentage change in quantity demanded increases more then price it also means that total revenue of good decreases as price increases and total revenue of good increases as price decreases that means there is negative relationship between price and total revenue of good when price elasticity of demand is Elastic.

On the other when price elasticity of demand is Inelastic then it means if price of good increase then total revenue of good increases if price of good decreases then total revenue of good decreases that means there is positive relationship between price and total revenue under Inelastic case.