1. The problem is to understand how price elasticity of demand affects total revenue when price changes. 2. Price elasticity of demand measures how much quantity demanded changes in response to a price change. It is calculated as: $$\text{Elasticity} = \frac{\% \text{ change in quantity demanded}}{\% \text{ change in price}}$$ 3. For price elastic demand (elasticity > 1), quantity demanded changes more than price. When price increases, quantity demanded decreases significantly, causing total revenue to decrease. When price decreases, quantity demanded increases significantly, causing total revenue to increase. 4. For price inelastic demand (elasticity < 1), quantity demanded changes less than price. When price increases, quantity demanded decreases slightly, so total revenue increases. When price decreases, quantity demanded increases slightly, so total revenue decreases. 5. Total revenue (TR) is calculated as: $$TR = P \times Q$$ where $P$ is price and $Q$ is quantity demanded. 6. In the graphs: - For price elastic demand, the demand curve is flatter, showing a large change in quantity for a price change. - For price inelastic demand, the demand curve is steeper, showing a small change in quantity for a price change. 7. The green and orange rectangles represent changes in total revenue components: - Green rectangle corresponds to the change in price times the initial quantity. - Orange rectangle corresponds to the change in quantity times the new price. 8. Summary: - Price Elastic Demand: Increase in price leads to decrease in total revenue; decrease in price leads to increase in total revenue. - Price Inelastic Demand: Increase in price leads to increase in total revenue; decrease in price leads to decrease in total revenue. Final answer: Understanding elasticity helps predict how total revenue changes with price changes based on the steepness of the demand curve.