The elasticity of a good is determined by the consumers need for it and the prices and quality of its substitutes. Plentiful products such as applesauce have a high elasticity and if one supplier decides to increase the price for its applesauce, then the revenue will fall due to a decrease in quantity demanded and an increase in demand for other brands of applesauce. Necessary goods such as medicine tend to be inelastic because of a lack of suppliers and when a specific kind of medicine is needed, then a consumer will be willing yet reluctant to pay high prices if necessary to attain this medicine.
Knowing how influential a products elasticity is on its pricing, equations have been introduced to give some perception into how changing the price of a good will affect the revenue.
The total revenue of a good is how much money is received by the sellers after selling their goods. Sellers tend to want to maximize their income so they must find the price which guarantees the highest possible revenue which may be tricky as any change can possibly lead to a huge loss in profits.
