Chapter 6 Elasticity- the percentage change in one variable, divided by the percentage change in another variable As we move downward and to the right along a straight-line demand curve, the price elasticity of demand becomes smaller. As we move upward to the left, the elasticity increases. Elastic- when the own-price elasticity is greater than 1 Unit-elastic- when the elasticity is equal to 1 Inelastic- the elasticity is less than 1 The total revenue that a business firm gets from selling a product is the amount of money the firm receives from its sales. TR= (P)(Q) Perfectly elastic- the demand curve is completely horizontal Perfectly inelastic-quantity demanded does not change at all when price changes. The demand curve is a vertical line. Forces that cause goods to be elastic or inelastic : • The availability of substitutes • The importance of the good in the consumer’s budget • The amount of time during which consumers can adjust to the price change Other things equal, consumers will have more elastic demand for items that make up a larger
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This note was uploaded on 12/04/2011 for the course EC 201 taught by Professor Haider during the Fall '10 term at Michigan State University.