ECON1101 Chapter Notes - Chapter 5: Margarine, Demand Curve
Document Summary
The elasticity of demand: elasticity: a measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants. Computing the price elasticity of demand: price elasticity of demand = percentage change in quantity demanded / percentage change in price, a larger price elasticity implies a greater responsiveness of quantity demanded to a change in price. Total revenue and the price elasticity of demand: total revenue (in a market): the amount paid by buyers and received by sellers of a good. Calculated as the price of the good times the quantity sold: total revenue = p x q, with an inelastic demand curve, an increase in the price leads to a decrease in quantity demanded that is proportionately smaller. Therefore, total revenue increases: with an elastic demand curve, an increase in the price leads to a decrease in quantity demanded that is proportionately larger.