ECON101 Chapter Notes - Chapter 4: Ceteris Paribus, Demand Curve, Toothpaste

• School: University of Waterloo
• Department: Economics
• Course: ECON101
• Professor: wokiakumase

Document Summary

Since as price increases, quantity demanded decreases, price elasticity is a negative number: magnitude or absolute value tells us how responsive the quantity demanded is, so the negative sign is ignored. Total revenue and elasticity: total revenue price of the good multiplied by quantity sold. If demand is elastic, a 1 percent price cut increases quantity by more than 1 percent and revenue increases. If demand is inelastic, a 1 percent price cut increases quantity by less than 1 percent and revenue decreases. If demand is unit elastic, a 1 percent price cut increases quantity by 1 percent and revenue remains the same. In a linear demand curve the midpoint gives maximum revenue: total revenue test method of estimating the price elasticity of demand by observing the change in total revenue that results from a change in price, ceteris paribus. If a price cut increases total revenue, demand is elastic. If a price cut decreases total revenue, demand is inelastic.