Describe what will happen to total revenue in the following situations: 1. Price decreases and demand is elastic 2. Price decreases and demand is inelastic 3. Price increases and demand is elastic 4. Price increases and demand is inelastic 5. Price increases and demand is unitary elastic 6. Price decreases and demand is perfectly inelastic 7. Price increases and demand is perfectly elastic

Total revenue increases

If prices are reduced, demand would increase more than the fall in price and total revenue would increase.

2. Total revenue falls. If price is reduced, there would be little or no change in quantity demanded and as a result total revenue would fall.

3. Total revenue falls.  If prices are increased, demand would fall more than the rise in price and total revenue would fall.

4, Total revenue increases. If demand is inelastic and prices are increased, the rise in price would be greater than the fall in demand. As a result, total revenue increases

5. no change in total revenue . a increase in price leads to an equal change in quantity demanded and there would be no change in total revenue

6. fall. If prices decreases, there would be no change in quantity demanded and total revenue would fall

7. total revenue falls to zero. If prices are increased, demand would fall to zero and total revenue would fall

Explanation:

Price elasticity of demand measures the responsiveness of quantity demanded to changes in price of the good.

Price elasticity of demand = percentage change in quantity demanded / percentage change in price

If the absolute value of price elasticity is greater than one, it means demand is elastic. Elastic demand means that quantity demanded is sensitive to price changes. If prices are reduced, demand would increase more than the fall in price and total revenue would increase. If prices are increased, demand would fall more than the rise in price and total revenue would fall.  

Demand is inelastic if a small change in price has little or no effect on quantity demanded. The absolute value of elasticity would be less than one. If price is increased, there would be little or no change in quantity demanded and total revenue would increase. If price is reduced, total revenue would fall.  

Demand is unit elastic if a small change in price has an equal and proportionate effect on quantity demanded. If price increases, there would be an equal change in quantity demanded, total revenue would remain the same

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