Equilibrium: Price Elasticity - Essay Example

Equilibrium It is apparent that producers with an understanding of price elastic will always be in a position to predict the effects of price changes regarding total revenue. In case there is a price hike, producers will be sure that each unit of the goods sold will sell for a higher price (Stretton 22). This translates to raising revenue. This is what is termed as price effect. On the other hand, after a price increase, in another dimension, it could also mean fewer units of the goods will be sold. This has the effect of lowering revenue.

In this regard, it is correct to argue that when there is a decrease in the price, total revenue reduces. On the other hand, when demand for a good is elastic, any price increase will tend to reduce total revenue. Focusing on the demand for a good, if the demand is inelastic, it translates to an increase in total revenue.