For elastic demand curves?????

Question

For elastic demand curves, total revenue falls as price rises whereas for inelastic demand curves total revenue rises as price rises. Can you please explain to me why?

Answer 1

You are not absolutely correct, but only somewhat correct. If elasticity is equal to one, whenever price changes demand changes in the same proportion in the opposite direction so that the revenue remains the same.

If you define that if elasticity is greater than one (1) as demand curve being elastic at the relevant points on the curve, you are correct. Elasticity>1, means when price rises, demand falls but proportionately more so that revenue falls.

Similarly, if you say that the demand curve is inelastic because the elasticity is less than one, you are again correct: for with elasticity < 1, a rise in price will lead to a fall in demand by a smaller proportion than the rise in price and therefore, revenue will rise

Answer 2

When a price change has no effect on the supply and demand of a good or service, it is considered perfectly inelastic. An example of perfectly inelastic demand would be a life saving drug that people will pay any price to obtain. Even if the price of the drug were to increase dramatically, the quantity demanded would remain the same.