【文章內(nèi)容簡介】 s from $10 to $0, the quantity demanded increases from 30 to 50 pizzas an hour. The average price is $5 and the average quantity is 40 pizzas. The price elasticity is (20/40)/(10/5), which equals 1/4. Price Elasticity of Demand 169。 2020 Pearson AddisonWesley If the price falls from $15 to $10, the quantity demanded increases from 20 to 30 pizzas an hour. The average price is $ and the average quantity is 25 pizzas. The price elasticity is (10/25)/(5/), which equals 1. Price Elasticity of Demand 169。 2020 Pearson AddisonWesley Total Revenue and Elasticity The total revenue from the sale of good or service equals the price of the good multiplied by the quantity sold. When the price changes, total revenue also changes. But a rise in price doesn’t always increase total revenue. 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 The total revenue test is a method of estimating the price elasticity of demand by observing the change in total revenue that results from a price change (when all other influences on the quantity sold remain the same). ? If a price cut increases total revenue, demand is elastic. ? If a price cut decreases total revenue, demand is inelastic. ? If a price cut leaves total revenue unchanged, demand is unit elastic. Price Elasticity of Demand 169。 2020 Pearson AddisonWesley Figure shows the relationship between elasticity of demand and the total revenue. As the price falls from $25 to $, the quantity demanded increases from 0 to 25 pizzas. Demand is elastic, and total revenue increases. Price Elasticity of Demand 169。 2020 Pearson AddisonWesley In part (b), as the quantity increases from 0 to 25 pizzas, demand is elastic, and total revenue increases. 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 At 25, demand is unit elastic, and total revenue is at its maximum. Price Elasticity of Demand 169。 2020 Pearson AddisonWesley As the price falls from $ to zero, the quantity demanded increases from 25 to 50 pizzas. Demand is inelastic, and total revenue decreases. Price Elasticity of Demand 169。 2020 Pearson Addis