ECN E102 Lecture Notes - Lecture 9: Demand Curve, Economic Equilibrium, Inferior Good
Document Summary
Total revenue and the price elasticity of demand. Total revenue: the amount paid by buyers and received by sellers of a good, computed as the price of the good times the quantity sold. If demand is inelastic, an increase in price causes an increase in total revenue (direct relationship) If demand is elastic, an increase in price causes a decrease in total revenue (inverse relationship) If demand is unit elastic, total revenue remains constant when the price changes. Elasticity and total revenue along a linear demand curve. Even though the slope of a linear demand curve is constant, the elasticity is not: slope = ratio of changes in the two variables, elasticity = ratio of percentage changes in the two variables. At points with a low price and high quantity, demand curve is inelastic. At points with a high price and low quantity, demand curve is elastic. For inelastic ped, we know that if p increases, tr increases.
