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Explain, using a diagram, in what way an increase in the price of a product is likely to affect sales revenue, if demand is price elastic.

Block Type
Knowledge Checkpoint
‣
Explain, using a diagram, in what way an increase in the price of a product is likely to affect sales revenue, if demand is price elastic. (worth 4 marks)

Diagram:

  • clearly labelled diagram (price, quantity, p, p1, q, q1, D) (1)
  • price elastic demand curve (1)
  • clear indication of revenue gained/lost (1)

Explanation:

  • the revenue gained due to the price increase does not compensate for the loss in revenue due to the fall in quantity demanded (1)
  • price elastic means a change in price will lead to a more than proportionate change in quantity demanded (1)

(From 2021 Higher Economics Assessment Resource Q3d(i))