Question

Explain the price elasticity on a demand curve and state its relationship to a firm’s total revenue and relationship to the consumers total expenditure?

Answer 1

By elasticity on a demand curve we mean responsiveness of quantity demanded to change in price . Whenever price elasticity is greater than one price fall will increase revenue and price increase will decrease revenue.price fall will increase consumer expenditure as proportionate rise in quantity demanded is greater than proportionate fall in price Price rise will decrease consumer ecoenditure

On the other hand it elasticity is less than one price increase will increase revenue and price fall will decrease revenue. Price fall will decrease consumer expenditure and price rise will increase it