ECON 101 Chapter Notes - Chapter 5: Marginal Utility, Demand Curve, Marginal Cost
Document Summary
The price elasticities of demand and supply show how responsive buyers and sellers are to changes in the price of a good. When the percentage change in quantity demanded exceeds the percentage change in price, demand is price elastic. If demand is price elastic, a price increase reduces total revenue and a price decrease increases total revenue. When the percentage change in quantity demanded is less than the percentage change in price, demand is price inelastic. If demand is price inelastic, a higher price increases total revenue, and a lower price reduces total revenue. When the percentage change in quantity demanded equals the percentage change in price, demand is unit elastic; a price change does not affect total revenue. Along a straight-lined, downward-sloping demand curve, the elasticity of demand declines steadily as the price falls. A constant-elasticity demand curve has the same elasticity everywhere. The price elasticity of supply measures the responsiveness of quantity supplied to price changes.