What typically happens to total revenue when demand is elastic?

When demand is elastic, this means that consumers are highly responsive to changes in price. In this case, if the price of a good or service increases, the quantity demanded will decrease significantly. Because of this strong reaction to price changes, total revenue, which is the product of price and quantity sold, tends to decrease when prices rise.

If total revenue decreases with price increases, it indicates that the percentage drop in quantity demanded is greater than the percentage increase in price. Therefore, the reduction in quantity sold outweighs any gains from the higher price, leading to a lower total revenue overall. This relationship highlights the nature of elastic demand, where consumers will buy significantly less of a good if its price rises, ultimately supporting the assertion that total revenue decreases.

In contrast, if demand were inelastic, price increases would result in higher total revenue because quantity demanded would not decrease significantly enough to offset the price increase.