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Chap004.6

# 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% Total revenue = \$22 x 3,500 = \$77,000/week z If P is lowered 10%, Q will increase 30% 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 ² When the cross-price elasticity of demand is positive. z Complement Goods ² When the cross-price elasticity of demand is negative....
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