How to Price Inelasticity Affects Total Revenue

For price inelastic goods or services, the change in the amount demanded is minimal with respect to the change in price. This can affect demand and total revenue for the business as:

• If the price for an inelastic good is increased and the demand does not change, the total revenue increases due to the higher price and static quantity demanded.
• However, price increases typically do lead to a small decrease in quantity demanded.
• This means that firms that deal with inelastic goods or services can increase prices, selling a little less but making higher revenues.
• Therefore, businesses that deal in goods that are price inelastic are better equipped for profit maximization and are better protected against economic downturns.
• Similarly, If the price for an inelastic good is lowered, the demand for that good does not increase, resulting in less overall revenue due to the lower price and no change in demand.

Source: NCERT