Price elasticity and total revenue/expenditure

Question 1

what is the formula for price elasticity and total revenue

Answer 1

TR (TE) = P x Q

Question 2

if price elasticity of demand is elastic and price increase what happens

Answer 2

price increase causing revenue to decrease.

decrease in demand will be more than increase in price

Question 3

if price elasticity of demand is inelastic and price increase what happens

Answer 3

price increases causing revenue to increases.

fall in D will be smaller than rise in P

Question 4

explain an example of total revenue to do with elasticity

Answer 4

if business has a discount sale it is to increase revenue which means they think demand for their product must be elastic (there are perfect substitiutes)

Question 5

what is price discrimination

Answer 5

prices are increased to customers with inelastic demand and prices are reduced to customers with elastic demand

Question 6

what is price discirmination based off

Answer 6

different consumer groups (gender/age) have different elasticity of demand and firms charge dif price to increase revenue

Question 7

explain the hairdresser example of price discrimination

Answer 7

females pay more than men because their demand is very inelastic and for men it is elastic
student/seniors pay less than adults because they have lower income which means demand is elastic compared to an adult
revenue increases if females are charged more than men and adults more than students/seniors

Question 8

describe the relationship between elasticity of demand and total revenue when demand is elastic

Answer 8

Price and TR move in opposite directions
rise in P = fall in TR
fall in P = rise in TR

Question 9

describe the relationship between elasticity of demand and total revenue when demand is inelastic

Answer 9

Price and TR move the same way
rise in P = rise in TR
fall in TR = fall in P

Question 10

describe the relationship between elasticity of demand and total revenue when demand is unitary inelastic

Answer 10

change in P does not change TR

Question 11

On the demand curve what happens if a business is located on the (top) half of the demand curve

Answer 11

TR increases by the decreases in Price

Question 12

On the demand curve what happens if a business is located on the (bottom) half of the demand curve

Answer 12

TR increases by the increase in Price

Question 13

On the demand curve where is total revenue maximised

Answer 13

at the midpoint (demand is unitary)