Principles of Economics- Mankiw (5th) 97

Principles of Economics- Mankiw (5th) 97 - CHAPTER 5 E L A...

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CHAPTER 5 ELASTICITY AND ITS APPLICATION 101 ELASTICITY AND TOTAL REVENUE ALONG A LINEAR DEMAND CURVE Although some demand curves have an elasticity that is the same along the entire curve, that is not always the case. An example of a demand curve along which elasticity changes is a straight line, as shown in Figure 5-5. A linear demand curve has a constant slope. Recall that slope is defined as “rise over run,” which here is the ratio of the change in price (“rise”) to the change in quantity (“run”). This par- ticular demand curve’s slope is constant because each $1 increase in price causes the same 2-unit decrease in the quantity demanded. 5 6 $7 4 1 2 3 Quantity 12 2468 1 0 1
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