【正文】 he average price is $20 and the average quantity is 10 pizzas. The price elasticity of demand is (20/10)/(10/20), which equals 4. Price Elasticity of Demand 169。 2020 Pearson AddisonWesley The change in total revenue due to a change in price depends on the elasticity of demand: ? If demand is elastic, a 1 percent price cut increases the quantity sold by more than 1 percent, and total revenue increases. ? If demand is inelastic, a 1 percent price cut increases the quantity sold by less than 1 percent, and total revenues decreases. ? If demand is unit elastic, a 1 percent price cut increases the quantity sold by 1 percent, and total revenue remains unchanged. Price Elasticity of Demand 169。 2020 Pearson AddisonWesley At $, demand is unit elastic and total revenue stops increasing. Price Elasticity of Demand 169。 2020 Pearson AddisonWesley Your Expenditure and Your Elasticity ? If your demand is elastic, a 1 percent price cut increases the quantity you buy by more than 1 percent and your expenditure on the item increases. ? If your demand is inelastic, a 1 percent price cut increases the quantity you buy by less than 1 percent and your expenditure on the item decreases. ? If your demand is unit elastic, a 1 percent price cut increases the quantity you buy by 1 percent and your expenditure on the item does not change. Price Elasticity of Demand 169。 2020 Pearson AddisonWesley Cross Elasticity of Demand The cross elasticity of demand is a measure of the responsiveness of demand for a good to a change in the price of a substitute or a plement, other things remaining the same. The formula for calculating the cross elasticity is: Percentage change in quantity demanded Percentage change in price of substitute or plement More Elasticities of Demand 169。 2020 Pearson AddisonWesley If the ine elasticity of demand is greater than 1, demand is ine elastic and the good is a normal good. If the ine elasticity of demand is greater than zero but less than 1, demand is ine inelastic and the good is a normal good. If the ine elasticity of demand is less than zero (negative) the good is an inferior good. More Elasticities of Demand 169。 2020 Pearson AddisonWesley Calculating the Elasticity of Supply The elasticity of supply is calculated by using the formula: Percentage change in quantity supplied Percentage change in price Elasticity of Supply 169。 2020 Pearson AddisonWesley Time Frame for Supply Decision The more time that passes after a price change, the greater is the elasticity of supply. Momentary supply is perfectly inelastic. The quantity supplied immediately following a price change is constant. Shortrun supply is somewhat elastic. Longrun supply is the most elastic. Table (page 97) provides a glossary of the all elasticity measures. Elasticity of Supply