Today we are going to look at the relationship between price elasticity of demand and total revenue. For GCSE (and A Level) students it is sometimes difficult to remember what a business must do to price in order to increase total revenue.
I get my students to remember Elastic Only Irritates Skin.
Elastic
Opposite
Inelastic
Same
So what does this mean? Well if a product has elastic demand (such as a holiday), in order to increase total revenue (price x quantity) the firm must lower price (opposite direction to total revenue). If the product has inelastic demand (such as cigarettes), in order to increase total revenue the firm must increase its price (same direction as total revenue).
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