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

For elastic demand total revenue and price has a negative relationship. A decrease in price will lead to more quantity demanded increasing the total revenue. An increase in price will lead to a fall in quantity demanded thus decreasing the total revenue.

For inelastic demand total revenue and price has a positive relationship. An increase in price will lead to more quantity demanded increasing the total revenue.