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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.
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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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