01:220:102 Chapter Notes - Chapter 6: Midpoint Method, Demand Curve
chrisfive2005 and 37653 others unlocked
57
01:220:102 Full Course Notes
Verified Note
57 documents
Document Summary
Price elasticity of demand- ratio of the percent change in the quantity demanded to the percent change in the price as we move along the demand curve (dropping the minus sign) Midpoint method- technique for calculating the percent change: calculate changes in a variable compared with the average, or midpoint, of the starting and final values. Demand is: perfectly elastic when any price increase will cause the quantity demanded to drop to zero. Demand curve is a horizontal line: elastic if the price elasticity of demand is greater than 1. Quantity effect dominates the price effect; fall in price increases total revenue: inelastic if the price elasticity of demand is less than 1. Price effect dominates quantity effect, so a fall in price reduces total revenue: unit-elastic if the price elasticity of demand is exactly 1. Two effects exactly balance, so a fall in price has no effect on total revenue.