ECON 200 Lecture Notes - Lecture 12: Normal Good, Demand Curve
Thursday, August 24, 2017
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- The steeper the demand curve that passes through a given point, the smaller the price elasticity
of demand
- total revenue, the amount paid by buyers and received by sellers of a good
- total revenue is P × Q
- If demand is inelastic, then an increase in the price causes an increase in total revenue
- if demand is elastic, an increase in the price causes a decrease in total revenue
- When demand is inelastic (a price elasticity less than 1), price and total revenue move in the
same direction: If the price increases, total revenue also increases
- When demand is elastic (a price elasticity greater than 1), price and total revenue move in
opposite directions: If the price increases, total revenue decreases
- If demand is unit elastic (a price elasticity exactly equal to 1), total revenue remains constant
when the price changes
- At points with a low price and high quantity, the demand curve is inelastic
- At points with a high price and low quantity, the demand curve is elastic
- The linear demand curve illustrates that the price elasticity of demand need not be the same at
all points on a demand curve
- income elasticity of demand measures how the quantity demanded changes as consumer
income changes
- normal goods have positive income elasticities
- inferior goods have negative income elasticities
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ECON 200 Full Course Notes
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Document Summary
The steeper the demand curve that passes through a given point, the smaller the price elasticity of demand. Total revenue, the amount paid by buyers and received by sellers of a good. If demand is inelastic, then an increase in the price causes an increase in total revenue. If demand is elastic, an increase in the price causes a decrease in total revenue. When demand is inelastic (a price elasticity less than 1), price and total revenue move in the same direction: if the price increases, total revenue also increases. When demand is elastic (a price elasticity greater than 1), price and total revenue move in opposite directions: if the price increases, total revenue decreases. If demand is unit elastic (a price elasticity exactly equal to 1), total revenue remains constant when the price changes. At points with a low price and high quantity, the demand curve is inelastic.
