There exists s relation hip between the elasticity and total revenue but it is different for elastic and inelastic goods. As the formula for total revenue is:
TR = P × Q
Where P = price and Q = Quantity
Now the elasticity of demand is a direct affect of the changes in price on the quantity demanded. When there is a significant increase in Price then there is generally a significant decrease in Quantity and as a result of which Total Revenue is smaller. This shows that for goods that have a high price elasticity of demand, the decrease in total revenue is quite significant. This means that there is a negative relationship between elasticity and total revenue when the goods are elastic. For inelastic goods, the relationship may be positive. It will be positive if the price increase causes an increase in the total revenue as the quantity does not change.
TR = P × Q
Where P = price and Q = Quantity
Now the elasticity of demand is a direct affect of the changes in price on the quantity demanded. When there is a significant increase in Price then there is generally a significant decrease in Quantity and as a result of which Total Revenue is smaller. This shows that for goods that have a high price elasticity of demand, the decrease in total revenue is quite significant. This means that there is a negative relationship between elasticity and total revenue when the goods are elastic. For inelastic goods, the relationship may be positive. It will be positive if the price increase causes an increase in the total revenue as the quantity does not change.
