The Relationship Between Revenue and Price Elasticity of Demand

By Jodi Beggs, About.com Guide

On the other hand, if a company faces inelastic demand, then the percent change in quantity demanded for its output will be smaller than a change in price that it puts in place. For example, a company that faces inelastic demand could see a 5 percent increase in quantity demanded if it were to decrease price by 10 percent. Clearly, there are still two effects on revenue happening here, but the increase in quantity doesn't outweigh the decrease in price, and the company will decrease its revenue by decreasing its price. Conversely, if the company were to increase its price, the decrease in quantity demanded wouldn't outweigh the increase in price, and the company would see an increase in revenue.

Previous

• Price Elasticity of Demand and Revenue
• Price Elasticity of Demand and Revenue
• Revenue Versus Profit Considerations

Next