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ECON 101 2Midtermreview

If demand is inelastic a 1 percent price cut

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Unformatted text preview: od has unit elastic demand. Total Revenue and Elasticity • The total revenue from the sale of good or service equals the price of the good multiplied by the quantity sold. • When the price changes, total revenue also changes. • But a rise in price doesn’t always increase total revenue. • The change in total revenue due to a change in price depends on the elasticity of demand: If demand is elastic, a 1 percent price cut increases the quantity sold by more than 1 percent, and total revenue increases. If demand is inelastic, a 1 percent price cut decreases the quantity sold by more than 1 percent, and total revenues decreases. If demand is unit elastic, a 1 percent price cut increases the quantity sold by 1 percent, and total revenue remains unchanged. The total revenue test is a method of estimating the price elasticit...
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