AP MicroeconomicsElasticity
Total Revenue Test
The total revenue test uses how total revenue responds to a price change to tell whether demand is elastic or inelastic.
If cutting price raises total revenue, demand is elastic; if cutting price lowers total revenue, demand is inelastic. If total revenue is unchanged, demand is unit elastic. When demand is elastic, price and total revenue move in opposite directions.
Formula / Example
Total revenue = Price × Quantity. Elastic: price and TR move oppositely; inelastic: same direction.
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