ECON 1100 Chapter Notes - Chapter 4.1: Cheddar Cheese, Linear Function
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Assumption: m,t,p*, size of population; all fixed d: q=f(p) Defined as the proportional change in the quantity demanded, or quantity purchased, divided by the proportional change in price (% change) Q,p = % q/% p = ( q/q)/( p/p) = q/ p * p/q = p/( p) Linear function: p = + q. Every price elasticity is negative due to the q/ p always being negative. = 1: d is of unitary elasticity: if demand is elastic ( >1); a fall in price increases revenue (to producers); and an increase in price reduces revenue (to producers) price and revenue is negatively related. Q,p = % q/% p > 1 % q > % p if p goes up; q goes down. Q,p = % q/% p < 1 % q < % p: if demand is unitary elastic; a fall or rise in price leaves revenue unaffected!