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Unformatted text preview: Tuesday, February 5, 2008 Elasticity and Total Revenue Along a Linear Demand Curve • With an inelastic demand curve, an increase in price leads to a decrease in quantity that is proportionately smaller. Thus, total revenue increases. o Not price sensitive, willing to pay any price (oil) o Producer can increase price o Total revenue will rise • With an elastic demand curve, an increase in the price leads to a decrease in quantity demanded that is proportionately larger. Thus, total revenue decreases. o Price sensitive o Total revenue will decrease o Greater than 1 elastic revenue decrease • Different points in a straight linear demand curve have different elasticity • Always a negative elasticity Other Demand Elasticities • Income Elasticity of Demand o Income elasticity of demand measures how much the quantity demanded of a good responds to a change in consumers’ income....
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This note was uploaded on 04/15/2008 for the course ECON 2106 taught by Professor Trandel during the Spring '07 term at UGA.
- Spring '07