Assume demand is elastic. How quantity, revenues, costs and profit will be effected if prices are increasing or decreasing.
Price elasticity of demand by way of definition is the degree of responsive of quantity demanded of a particular good to change as a result of change the price of the product.
Elastic Demand means that a little change in price leads to a more than a proportionate change in quantity demanded of that good.
How does elastic demand affect
1) Quantity: increase in price of an elastic demand will reduce quantity demanded and a decrease in price will increase quantity demanded by more than proportionate change in price
2) Revenues: when price is elastic, an increase in price will reduce the demand for the product. As a result the the will sell less and realise less revenue and vise versa.
3) Cost: Cost of production will increase if the price of input as an elastic demand. Vise versa
4) Profit: is the total income or cash flow minus expenditures so if the price of elastic demand rises, the quantity sold will drop and total income accruing to the business will drop as well thereby reducing their profit.
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