We want to sort out the four examples given before -- farming, computers, records, and public transportation. A first step is to distinguish between sales revenue and price. Revenue is the amount the company or industry takes in, before the costs. In other words, revenue is the product of the average price and the quantity sold:
R=p*Q
When the record industry cut their prices, they sold more records. In fact, they sold so many more that the increase in sales more than offset the cut in price and their sales revenue increased. That worked for the computer industry, too. But it didn't work for agriculture and public transportation -- if they cut prices, they only sell a little more, and their sales revenues and incomes fall. If the public transportation service cuts its fare, there will be an increase in the number of tickets sold, but just a small increase, and it won't be enough to make up for the price cut. Likewise farmers -- a cut in price will lead to more sales of food, but not enough more to make up for the price cut, and farm incomes (the farmers' sales revenues) went done.
Since the change in sales revenue depends on both the change in price and the change in quantity sold, we can understand why a cut in the price can have different results depending on how the quantity sold changes.
