Name: Habib Muhammad Hassan

Registra on No. 2339102

How would the following changes in price affect total revenue?

That is, would total revenue increase, decrease, or remain
unchanged? Also give 1 or 2 liner explana on.

a. Price falls, and demand is inelas c.

If demand is inelas c, total revenue will decrease when price falls. In such case percentage of change
in quan ty demanded will be less than that of price, which will subsequently reduce the total revenue
as revenue is just quan ty demanded mul plied with price.

E.g. If a product’s price falls from Rs.5 to Rs.4 and its quan ty demanded increase from 100 to 110.
Then its total revenue will decrease from Rs.500 to Rs.440. Hence reduc on of Rs.60 in total revenue.

b. Price rises, and demand is elas c.

The total revenue will decrease. In this case, where demand is elas c, it means percentage change
in quan ty is higher than percentage change in price.

E.g. If a product’s price rises from Rs.5 to Rs.6 and its quan ty demanded decreases from 100 to 70.
Then its total revenue will decrease from Rs.500 to Rs.420. Hence reduc on of Rs.80 in total revenue.

c. Price rises, and supply is elas c.

In this case, total revenue will increase. Supply being elas c means Es is greater than 1. Which means
change in quan ty supplied is more than the change in price.

E.g. If a product’s price rises from Rs.5 to Rs.6 and its quan ty supplied increase from 100 to 150.
Then its total revenue will increase from Rs.500 to Rs.900. Hence increasing revenue.

Note. Demand factor is not considered here.

d. Price rises, and supply is inelas c.

The total revenue will increase as supply is inelas c.

E.g. If a product’s price rises from Rs.5 to Rs.6 and its quan ty supplied increase from 100 to 110.
Then its total revenue will increase from Rs.500 to Rs.660. Hence increasing revenue.

Note. Demand factor is not considered here.

e. Price rises, and demand is inelas c.

Total Revenue increases. As demand is inelas c, the percentage change in price is more than the
percentage change in quan ty demanded.

E.g. If a product’s price rises from Rs.5 to Rs.6 and its quan ty demanded decreases from 100 to 95.
Then its total revenue will increase from Rs.500 to Rs.570. Hence addi on of Rs.70 in total revenue.