Question

When the demand is elastic, the percentage change in quantity is (greater/smaller) than the percentage change in price, so when the price falls, the total revenue (increases/decreases).

Answer 1

Elasticity of demand = (% change in quantity demand / % change in price)

Demand is elastic when, absolute value of elasticity of demand is greater than 1.

Hence, Demand is elastic when (% change in quantity demand / % change in price) > 1

=> Demand is elastic when : % change in quantity demand > % change in Price.

According to total outlay method when demand is elastic and price decreases then Total Revenue will increase or if price increases Total Revenue will decrease

Hence, When the demand is elastic, the percentage change in quantity is greater than the percentage change in price, so when the price falls, the total revenue increases.