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【正文】 ow Total Revenue Changes When Price Changes: Price Elastic Demand Demand Quantity 0 Price Revenue = €200 €4 50 Demand Quantity 0 Price Revenue = €100 €5 20 An Increase in price from €4 to €5 … … leads to an decrease in total revenue from €200 to €100 Copyright169。2022 SouthWestern Total Revenue and the Price Elasticity of Demand ? Total revenue is the amount paid by buyers and received by sellers of a good. ? Computed as the price of the good times the quantity sold. TR = P x Q Figure 2 Total Revenue Demand Quantity Q P 0 Price P Q = €400 (revenue) €4 100 Copyright169。2022 SouthWestern Figure 1 The Price Elasticity of Demand (d) Price Elastic Demand: Elasticity Is Greater Than 1 Demand Quantity 4 100 0 Price € 5 50 1. A 22% increase in price . . . 2. . . . leads to a 67% decrease in quantity demanded. Copyright169。2022 SouthWestern Figure 1 The Price Elasticity of Demand (b) Price Inelastic Demand: Elasticity Is Less Than 1 Quantity 0 € 5 90 Demand 1. A 22% increase in price . . . Price 2. . . . leads to an 11% decrease in quantity demanded. 4 100 Copyright169。 – the more narrowly defined the market。5 Elasticity and Its Applications Elasticity . . . ? … allows us to analyze supply and demand with greater precision. ? … is a measure of how much buyers and sellers respond to changes in market conditions THE ELASTICITY OF DEMAND ? Price elasticity of demand is a measure of how much the quantity demanded of a good responds to a change in the price of that good. ? Price elasticity of demand is the percentage change in quantity demanded given a one percent change in the price. The Price Elasticity of Demand and Its Determinants ? Availability of Close Substitutes ? Necessities versus Luxuries ? Definition of the Market ? Time Horizon The Price Elasticity of Demand and Its Determinants ? Demand tends to be more elastic: – the larger the number of close substitutes。 – if the good is a luxury。 – the longer the time period. Computing the Price Elasticity of Demand ? The price elasticity of demand is puted as the percentage change in the quantity demanded divided by the percentage change in price. P r i c e e l a s t i c i t y o f d e m a n d = P e r c e n t a g e c h a n g e i n q u a n t i t y d e m a n d e
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