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Chapter 5 Notes

Chapter 5 Notes - Chapter 5 Price elasticity of demand...

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Chapter 5 03/03/07 - Price elasticity of demand Measures how much the quantity demanded responds to a change in P. The price elasticity of demand is closely related to the slope of the demand curve. The flatter the curve, the larger the elasticity, vice-versa for steeper curve. - Total Revenue Price X Quantity Higher price means more money per ticket but less people buying them - Elasticity If demand is elastic, then price elasticity of demand is >1 % Change in Q > % change in P The fall in revenue from lower Q is greater than the increase in revenue from higher P, so revenue falls. When Demand is elastic a price increase causes revenue to fall. Rise in price leads to quantity and TR going down Decrease in Price leads to a higher quantity and TR. - Inelasticity Inelastic if less than 1. % Change in Q < % change in P The fall in revenue from lower Q is smaller than the increase in revenue from higher P.
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