ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -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.

Detailed explanation-2: -If demand is elastic, then a price increase reduces the total revenue. When the price increases, then the demand falls by a considerable percentage. Then, total revenue starts moving in contradictory directions. Therefore, total income declines when the price of any commodity rises.

Detailed explanation-3: -What is a total revenue test? It’s a test that determines whether a product’s (or service’s) demand is elastic or inelastic. The test approximates a product’s price elasticity of demand by measuring the change in the total revenue against a change in the price.

Detailed explanation-4: -Total revenue equals total quantity sold multiplied by price of good. With elastic demand – a rise in price lowers total revenue TR increases as price falls.

Detailed explanation-5: -If demand for a product is price elastic and the price increases, total revenue will decrease. If demand for a product is price inelastic and the price decreases, total revenue will decrease.