Answer to Question #199985 in Microeconomics for Cheyenne Chellen

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.