ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -If price changes by a larger percentage than quantity demanded (i.e., if demand is price inelastic), total revenue will move in the direction of the price change. If price and quantity demanded change by the same percentage (i.e., if demand is unit price elastic), then total revenue does not change.

Detailed explanation-2: -Elasticity of demand determines how a change in prices will affect a firm’s total revenue or income. A company’s total revenue is the amount of money the company receives by selling its goods. This is determined by the price of the goods and the quantity sold.

Detailed explanation-3: -If the price of an elastic good increases, there is a corresponding quantity effect, where fewer units are sold, and therefore reducing revenue. The lower the price elasticity of demand, the less responsive the quantity demanded is given a change in price.

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).

Detailed explanation-5: -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.