ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Inverse Demand Theory
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Total Revenue Test
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Equilibrium Price Test
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Demand Coefficient Formula
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Detailed explanation-1: -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-2: -TOTAL REVENUE TEST. Total revenue (TR) is calculated by multiplying price (P) per unit and quantity (Q) of the good sold. The total revenue test is a method of estimating the price elasticity of demand. As Ed will impact the total revenue, we can estimate the Ed by looking at the movement of the total revenue.
Detailed explanation-3: -The demand elasticity of goods with close substitutes is measured by dividing the percent change of the quantity demanded of one product by the percent change in the price of a substitute product. This formula is also known as the cross elasticity of demand.