Chapter 5, Problem 1QP

To determine

Relation between elastic and inelastic demand curves in price and total revenue.

Explanation of Solution

Total revenue is the amount of money that a firm, company, or an industry actually receives during a specific period. Elasticity is the change in quantity demanded in response to change in price. Therefore, a change in price or quantity will affect the total revenue.

When the demand curve is relatively inelastic along with a fall in price, the total revenue will reduce. When the demand curve is relatively elastic, increase in price will also cause fall in the total revenue. On the other hand, a relatively elastic demand curve with a fall in price or relatively inelastic demand with a rise in price will increase the total revenue.

Economics Concept Introduction

Relatively elastic demand: Relatively elastic demand refers to the high responsiveness or the change in quantity demanded due to a small change in price.

Relatively inelastic demand: Relatively inelastic of demand refers to the small responsiveness or the change in quantity demanded due to a high change in price.

Total revenue (TR): TR is the amount of money that a firm, company, or an industry actually receives during a specific period.