How is total revenue affected by a good being elastic or inelastic?
In economics the total revenue test is a means for determining whether demand is elastic or inelastic. If an increase in price causes an increase in total revenue then demand can be said to be inelastic since the increase in price does not have a large impact on quantity demanded. If an increase in price causes a decrease in total revenue then demand can be said to be elastic since the increase in price has a large impact on quantity demanded.
The function of TR is graphed as a downward opening parabola due to the concept of elasticity of demand. When price goes up quantity will go down. Whether the total revenue will grow or drop depends on the original price and quantity and the slope of the demand curve. For example total revenue will rise due to an increase in quantity if the percentage increase in quantity is larger than the percentage decrease in price. The percentage change in the price and quantity determine whether the demand for …
Total revenue test - Wikipedia
Price elasticity of demand - Wikipedia
Total revenue test - Wikipedia
Price elasticity of demand - Wikipedia
As a result the relationship between elasticity and revenue can be described for any good: When the price elasticity of demand for a good is perfectly inelastic (E d = 0) changes in the price do not affect the quantity demanded for the good; raising prices will always cause total revenue to increase. Goods necessary to survival can be classified here; a rational person will be willing to pay anything for a good …
Thu Apr 28 2005 14:30:00 GMT-0400 (Eastern Daylight Time) · The effect of a change in taxation level on total tax revenue depends on the good being investigated and in particular on its price elasticity of demand. Where goods have a low elasticity of demand (they are price inelastic ) an increase in tax or duty wi...
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