ECONOMICS (CBSE/UGC NET)

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: -In economics, the total revenue test is a means for determining whether demand is elastic or inelastic. If an increase in price causes an increase in total revenue, then demand can be said to be inelastic, since the increase in price does not have a large impact on quantity demanded.

Detailed explanation-3: -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: an increase in price will increase total revenue, and a reduction in price will reduce it.

Detailed explanation-4: -In the elastic region, the percentage change in quantity demanded is greater than the percentage change in price, so raising the price in this region of the demand curve will decrease total revenue while lowering the price increases total revenue.