What does the total revenue test assess?

The total revenue test is a method used to assess how changes in price affect total revenue, which in turn indicates the elasticity of demand for a good or service. When the price of a product changes, the total revenue can either increase or decrease depending on how sensitive consumers are to that price change.

If demand is elastic, a decrease in price leads to a proportionally larger increase in quantity demanded, resulting in an increase in total revenue. Conversely, if demand is inelastic, a decrease in price results in a smaller increase in quantity demanded, leading to a decrease in total revenue. This relationship between price changes and total revenue allows economists to determine whether the demand for a good is elastic or inelastic.

The other options do not accurately define the focus of the total revenue test. Consumer satisfaction relates to utility rather than revenue changes, overall economic growth pertains to macroeconomic indicators and national output rather than individual market behaviors, and the relationship between employment and production focuses on labor economics rather than the pricing impact on revenue.