How is total revenue affected when demand is inelastic?

When demand is inelastic, consumers are not very responsive to changes in price, meaning that even if the price increases, the quantity demanded decreases only minimally. In this scenario, the increase in price leads to a proportionally smaller decrease in the quantity sold, resulting in a net increase in total revenue.

This relationship highlights a key characteristic of inelastic demand. When the price rises, the total revenue, calculated as price multiplied by quantity sold, increases because the decrease in quantity sold does not outweigh the increase in price. Thus, for goods with inelastic demand, businesses can benefit from raising prices, as it will lead to higher overall revenue despite selling fewer units.

Understanding this concept is critical in marketing and pricing strategy, especially for products that are necessities or have few substitutes, where consumers are less likely to change their purchasing behavior as prices fluctuate.