Question

Define what happens to revenue and why, when there is a price increase in a product...

  1. Define what happens to revenue and why, when there is a price increase in a product that has a price elasticity of demand that is elastic, inelastic, and unity elastic. In your answer be sure to also explain what makes price elasticity of demand elastic, inelastic, and unit elastic.

Homework Answers

Answer #1

When price elasticity of demand is elastic - The increase in prices of a product reduces the revenue earned from that product for an elastic demand.
(The price elasticity of demand being elastic means that the % change in quantity demanded is greater than the % change in price)

When price elasticity of demand is inelastic - The increase in prices of a product increases the revenue earned for a product with inleastic demand, or price elasticity of demand less than 1
(The price elasticity of demand being inelastic means that the % change in quantity demanded is less than the % change in price)

When price elasticity of demand is unity elastic - The increase in prices of a product has no effect on the revenue earned from that product.
(The price elasticity of demand being unity elastic means that for a % change of price, the % change in quantity demanded is numerically equal.)

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