The relationships between price elasticity of demand and firms' total revenue (total expenditure)
When a firm changes its price, total revenue either rises or falls depending on how sensitive customers are to that price change. Price elasticity of demand (PED) tells you which way total revenue moves.
Formula
TR = P × Q
Real World
Amazon Prime Video keeps its subscription price relatively stable because demand is elastic at higher prices — raising price would cause TR to fall as subscribers cancel.
Exam Focus
Memorise the rule: elastic demand → price and TR move in opposite directions; inelastic → same direction. State this explicitly before applying it.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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