Briefly explain the effect of price elasticity of demand to the total revenue. Cite an example.
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Briefly explain the effect of price elasticity of demand to the total revenue. Cite an example.
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Price elasticity of demand refers to the degree to which the quantity demanded of a good or service changes in response to a change in its price. If the demand for a good is elastic, then a decrease in price will result in a proportionally larger increase in quantity demanded, leading to an increase in total revenue. Conversely, if the demand for a good is inelastic, a decrease in price will lead to a proportionally smaller increase in quantity demanded, resulting in a decrease in total revenue. For example, if the price of a luxury car is reduced by 10% and the quantity demanded increases by 15%, then the demand for the car is elastic, and the total revenue of the car company will increase.
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