ECO101H1 Lecture Notes - Lecture 6: Demand Curve, Dialysis, Toothpaste

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ECO101H1 Full Course Notes
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ECO101H1 Full Course Notes
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You sell sparkling water, which you obtain from your own spring at no cost. Since your costs are zero, your profit equals your total revenue (number of bottles sold times price per bottle) Question to increase your total revenue, should you increase the price above . If you raise the price: customer who continue buy your water would pay more (thus, increasing total revenues) But: you would have fewer customers due to the law of downward-sloping demand (thus, reducing revenues) Insight: we need more information about the demand curve in order to answer the question. Key concept: elasticity of demand (price) elasticity of demand. Definition: percent change in quantity demanded / percentage change in price (percent change in qd) divided by (percent change in price) Measures responsiveness of quantity demanded to a change in price. % delta quantity demanded = 200/ [(1100+900)/2] * 100. % delta quantity demanded = 0. 2/ [(1. 10+0. 90)/2] * 100.

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