ECO101H1 Lecture Notes - Lecture 4: Toronto Transit Commission, Royal Ontario Museum, Demand Curve
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ECO101H1 Full Course Notes
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For the special cases of perfectly inelastic demand and perfectly elastic demand, the law of downward sloping demand does not apply. For a perfectly inelastic demand curve, for example, an increase in price does not reduce quantity demanded. (price elasticity of demand) % change in quantity demanded / % change in price. Measures responsiveness of quantity demanded to a change in price (as you move along dd curve) In response to an increase in price, total revenue: Is unchanged if demand is unit elastic. Decreases if demand is elastic (revenue at higher price) Inelastic demand curve (tr increases if price increases): Graph that is almost perfectly inelastic except it curves at the bottom** Says revenue increases at the inelastic section, but decreases at the curved section. Tr0 = p0 * q0 (revenue at old price) In this case, revenue increase exceeds revenue decrease, so total revenue rises as price increases.