What does price elasticity of demand tell us about the impac

What does price elasticity of demand tell us about the impact of a price increase on total revenue? What are some goods with highly inleastic price elasticity of demand and how does governmental taxing policy take advantage of that?

Solution

The relationship between elasticity of demand and a firm\'s total revenue is an important one.

The most famous example of inelastic demand is that for gasoline. As the price of gasoline increases, the quantity demanded doesn\'t decrease all that much. This is because there are very few good substitutes for gasoline and consumers are still willing to buy it even at relatively high prices. If goverment increases tax on this kind of goods the deamnd remains the same and they take advantage of making more money from that product.