Elasticity & Revenue

The value of Demand elasticity determines the change in revenue that has occured as a result of change in prices.
Value of elasticity and revenue
1. E > 1
In this case, the quantity demanded is relatively elastic, meaning that a price change will cause an even larger change in quantity demanded. The case of Ed = infinity is referred to as perfectly elastic. In this theoretical case, the demand curve would be horizontal. For products having a high price elasticity of demand, a price increase will result in a revenue decrease since the revenue lost from the resulting decrease in quantity sold is more than the revenue gained from the price increase.

2. E < 1
In this case, the quantity demanded is relatively inelastic, meaning that a price change will cause less of a change in quantity demanded. The case of Ed = 0 is referred to as perfectly inelastic. In this theoretical case, the demand curve would be vertical. For products whose quantity demanded is inelastic, a price increase will result in a revenue increase since the revenue lost by the relatively small decrease in quantity is less than the revenue gained from the higher price.

3. E = 1
In this case, the product is said to have unitary elasticity; small changes in price do not affect the total revenue.