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Profits = Total revenues - Total costs
Total revenues = price * quantity
If demand B has a steeper slope than demand A, then A is elastic (price sensitive) while B is inelastic (price insensitive).
For an elastic demand, Revenue is inversely proportional to Price.
For an inelastic demand, Revenue is directly proportional to Price.
Elastic demand leads to an intense focus on price & cost and vice versa.
| Factor: | Elastic | Inelastic |
| 1. Need | low | hi |
| 2. Competition | hi | low |
| 3. % of budget | hi | low |
| 4. Substitutes | hi | low |
Taxes levied upon certain goods, supposedly to reduce consumption, that actually increase tax revenue due to the inelastic demand.
ED = |%Q|/|%P|