16633 Chapter Notes - Chapter 5: Demand Curve
Document Summary
Elasticity explains the sensitivity of one variable to changes in another variable. Useful for business decision-making (e. g. pricing, marketing) and policy-making. The elasticity coefficient (ed) is used to measure the degree of elasticity. The ratio of the percentage changes in the quantity demanded of a product to a percentage change in its price: the price elasticity of demand formula is: Total revenue is the revenue a firm earns from sales: The elasticity coefficient gives us the effect on total revenue of a decrease in price: elastic: increases total revenue inelastic: decreases total revenue, unitary: no change total revenue. Variations along a straight-line demand curve: price elasticity of demand for a downward-sloping straight-line demand curve varies as we move along the curve, any straight line demand curve has three ranges: A price elastic range (at high prices) A price inelastic range (at low prices). Determinants of price elasticity of demand: factors that influence the price elasticity of a good or service:
