PED and Total Revenue

Question 1

Total Revenue (TR)

Answer 1

TR = Price × Quantity Sold

Question 2

How PED Affects Total Revenue

Elastic Demand (PED > 1)

Answer 2

Price and TR move in opposite directions.

If price increases, quantity demanded falls a lot → TR falls

If price decreases, quantity demanded rises a lot → TR increases

Question 3

Inelastic Demand (PED < 1)

Answer 3

Price and TR move in the same direction.

If price increases, quantity demanded falls a little → TR increases

If price decreases, quantity demanded rises a little → TR falls

Question 4

Elastic Only Irritates Skin

Answer 4

Same → Inelastic

Opposite → Elastic

Question 5

When Demand is Price Elastic (PED > 1)

Answer 5

Price falls → TR rises

The increase in quantity demanded is proportionally greater than the fall in price

Question 6

Diagram Explanation:

Answer 6

Original Revenue = P1 × Q1 (red box)

New Revenue = P2 × Q2 (green box)

Green box is larger, so TR increases

Conclusion: If demand is elastic, firms should lower prices to increase total revenue.

Question 7

When Demand is Price Inelastic (PED < 1)

Answer 7

Price rises → TR rises

The decrease in quantity demanded is proportionally less than the increase in price

Question 8

Diagram Explanation:

Answer 8

Original Revenue = P1 × Q1 (red box)

New Revenue = P2 × Q2 (green box)

Green box is larger, so TR increases

Conclusion: If demand is inelastic, firms should raise prices to increase total revenue.