M110_5.5 - Price Elasticity of Demand The price elasticity...

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Price Elasticity of Demand The price elasticity of demand E , is the percentage rate of decrease of demand per percentage increase in price. E is given by: Demand is: Elastic if E > 1 Unit Elasticity if E = 1 Inelastic if E < 1
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Price Elasticity of Demand If the demand is elastic at p , then an increase in unit price causes a decrease in revenue. A decrease in unit price causes an increase in revenue. If the demand has unit elasticity at p , then with an increase in unit price the revenue will stay about the same. If the demand is inelastic at p , then an increase in unit price causes an increase in revenue. A decrease in unit price causes a decrease in revenue.
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Price Elasticity of Demand Ex. The monthly demand for T-shirts is given by where p denotes the wholesale unit price in dollars and q denotes the quantity demanded monthly. Find the price elasticity of demand when p = $5 and p = $15, and interpret the results.
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E (5) = 2/15 which is inelastic.
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