Understand the idea
Price elasticity describes the percentage response of quantity demanded to a percentage price change. With elastic demand, a price reduction can raise revenue because the quantity response more than offsets the lower price. Inelastic demand gives the opposite revenue relationship. Revenue is still distinct from profit because costs also change. [S37] State whether you mean a local estimate or an observed finite change; substitutions, timing, and the starting price matter.
Worked example
An invented event sells 100 tickets at INR 500, yielding INR 50,000. At INR 450 it sells 120, yielding INR 54,000. Revenue rises, but if each attendee creates INR 250 in variable costs, contribution falls from INR 25,000 to INR 24,000. The arithmetic demonstrates why revenue growth does not settle the decision.
Where the idea stops
An observed before/after change is not automatically a causal demand curve: advertising, seasonality, and capacity may also change. Elasticity varies across ranges and horizons.
Connect it
Business and science: pricing decisions and controlled comparisons.
Go deeper
Why might a price cut raise revenue but lower contribution?
Sources
OpenStax, Principles of Economics 3e · Research reference · Date: 2022, textbook
Connects price responsiveness with total revenue, rather than automatically with profit.
Link checked 2026-10-17 · Public webpage accessed; no specialist peer review of this brief.