ECO101H1 Lecture Notes - Lecture 6: Demand Curve, Margarine, Lincoln Near-Earth Asteroid Research

• School: UTSG
• Department: Economics
• Course: ECO101H1
• Professor: Jessica Burley

Document Summary

You sell sparkling water, which you obtain from your own spring at no cost. Since your costs are zero, your profits equals your total revenue (number of bottles sold times price per bottle) Total revenue: price x quantity (price) elasticity of demand. Price elasticity of demand: % change in quantity demanded / % change in price. Measures responsiveness of quantity demanded to a change in price. % q = q/q (q = average quantity) % p = p/p (p = average price) % quantity demanded = [200 / [(1,100 + 900)/2]] x 100. Insight: same result if you go up the demand curve from a to b or down the demand curve from b to a. If price increases, total revenue (price x quantity) Therefore the quantity demanded is very responsive to a change in price. If demand is inelastic, relatively few customers will stop buying the product, so most of the existing customers will pay the higher price.