Chap004.6 - changes in price and changes in total...

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6 Chapter 4: Elasticity Slide 31 Elasticity and Total Expenditure ± A price increase will increase total revenue when the % change in P is greater than the % change in Q. Chapter 4: Elasticity Slide 32 Elasticity and Total Expenditure ± Should a rock band raise or lower its price to increase total revenue? 3 000 5 Q 20 P = = = , $ Chapter 4: Elasticity Slide 33 Elasticity and Total Expenditure ± Should a rock band raise or lower its price to increase total revenue? z Total revenue = $20 x 5,000 = $100,000/week z If P is increased 10%, Q will decrease 30% ² Total revenue = $22 x 3,500 = $77,000/week z If P is lowered 10%, Q will increase 30% ² Total revenue = $18 x 6,500 = $177,000/week Chapter 4: Elasticity Slide 34 Elasticity and Total Expenditure ± When price elasticity is greater than 1,
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Unformatted text preview: changes in price and changes in total expenditures always move in opposite directions. When price elasticity is less than 1, changes in price and changes in total expenditures always move in the same direction. Chapter 4: Elasticity Slide 35 Elasticity and Total Expenditure Cross-Price Elasticity of Demand z The percentage by which quantity demanded of the first good changes in response to a 1 percent change in the price of the second good. Chapter 4: Elasticity Slide 36 Elasticity and Total Expenditure Cross-Price Elasticity of Demand z Substitute Goods When the cross-price elasticity of demand is positive. z Complement Goods When the cross-price elasticity of demand is negative....
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This note was uploaded on 02/20/2012 for the course ECON 202 taught by Professor Brightwell during the Spring '08 term at Texas A&M.

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