Cut a price and you sell more — but do you make more MONEY? It depends how ‘stretchy’ demand is. If a small price cut brings a big surge in buyers (elastic), revenue rises; if buyers barely budge (inelastic, like insulin or salt), a cut just loses money. That single ratio drives every pricing decision. Slide the elasticity and watch the revenue box.
Price elasticity of demand is E = (%Δquantity)/(%Δprice) — how sharply buyers respond to price. |E| > 1 is ELASTIC (luxuries, substitutes: a price cut raises quantity more than proportionally, so total REVENUE rises); |E| < 1 is INELASTIC (necessities: quantity barely moves, a cut just lowers revenue); |E| = 1 leaves revenue unchanged. So whether to discount hinges entirely on this one number. A fail-loud self-check throws unless an elastic good’s revenue rises on a price cut and an inelastic good’s falls. ◆ real microeconomics, node-verified.
Point elasticity with a linear demand approximation (the exact %ΔQ/%ΔP definition); real elasticity varies along the curve and with time horizon — the elastic-cut-raises-revenue rule is the exact, defining consequence.