Price Elasticity and Total Revenue

This short revision video explores the important link between the coefficient of price elasticity of demand and total revenue for a supplier

Key summary

Impact on total revenue for a good with an inelastic demand if the price rises

• If Ped <1, then a rise in price leads to an increase in total revenue

Impact on total revenue for a good with an elastic demand if the price rises

• If Ped > 1, then a rise in prices leads to a decrease in total revenue

Impact on total revenue for a good with unitary elastic demand if the price rises

• If demand has unitary elasticity, then a change in price leaves total revenue unchanged