ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -When demand is price inelastic, a given percentage change in price results in a smaller percentage change in quantity demanded. That implies that total revenue will move in the direction of the price change: a reduction in price will reduce total revenue, and an increase in price will increase it.

Detailed explanation-2: -However, if demand is inelastic at the original quantity level, then should the company raise its prices, the percentage increase in price will result in a smaller percentage decrease in the quantity sold-and total revenue will rise.

Detailed explanation-3: -For an inelastic good, a one percent change in the price results in a less than one percent change in the quantity demanded. A price increase for an inelastic good will increase total revenue while a price decrease for an inelastic good decreases total revenue.

Detailed explanation-4: -Price and total revenue have a negative relationship when demand is elastic (price elasticity > 1), which means that increases in price will lead to decreases in total revenue. Price changes will not affect total revenue when the demand is unit elastic (price elasticity = 1).