5 What is the total revenue test? Explain how it works. When the price of a good changes, the change in your expenditure on the good depends on your elasticity of demand.

◆ If your demand is elastic, a 1 per cent price cut increases the quantity you buy by more than 1 per cent and your expenditure on the item increases.

◆ If your demand is inelastic, a 1 per cent price cut increases the quantity you buy by less than 1 per cent and your expenditure on the item decreases.

◆ If your demand is unit elastic, a 1 per cent price cut increases the quantity you buy by 1 per cent and your expenditure on the item does not change.