Question

Use well labeled diagrams to discuss the relationship between the price elasticity of demand and total

revenue.

Answer 1

 Relationship between the Price Elasticity of Demand and Total Revenue.

Demand for commodity is price elastic if total revenue increases (falls) as price increases (falls) (DellaVigna & Gentzkow, 2019). If Total Revenue (TR) remains constant whether P falls or rises, de­mand is said to be unitary elastic. this relationship is shown on the diagrams below

Fig 1: Relationship between the Price Elasticity of Demand and Total Revenue.

(Source: DellaVigna & Gentzkow, 2019)

Reference

DellaVigna, S., & Gentzkow, M. (2019). Uniform pricing in us retail chains. The Quarterly Journal of Economics, 134(4), 2011-2084.