Question

Could someone take note for me from this paragraph with explantation. Thank you in advance

CUPTERS Demand laddes 81 Price Elasticity Values The calculated value of all price elasticities for downward signe demand Elastic demand s neative number, given the inverse relationship between price and quas The per change in demanded by comment y demanded. Ir price increases, quantity demanded decreases and vice versa than the percentage change in Therefore, it is easier to drop the negative son and examine the soute value price >L an of the number to determine the size of the price elasticity. This trece Inelastic demand leads to the definitions shown in Table 31 The percent changing As shown in Table 3.1, demand is elastie if the coefident's besteht dened by comments ter than 1 and inelastic if the coeficient's absolute value is less than 1. For than the percent changin lastde demand, the percentage change in quantity demanded by Comes water than the percentage change in price. This implies a larger Co r reo Unitary elasticity or unit dueness to changes in prices than does Inelastle demand, in which the percent elastic de change in quantity demanded by consumers is less than the percentare chance the percent change in de In the case of unitary elasticity, where e demanded by the l, the percentage change in dengan pend cuantity demanded is exactly equal to the percentage change in price HL Elasticity and Total Revenue The fourth column of Table 3.1 shows the relationship among price elasticity, changes in prices, and total revenue received by the firm, which, as noted above, is defined as price times quantity (P)(Q). If demand is elastic, higher prices result in lower total revenue, while lower prices result in higher total revenue. This outcome arises because the percentage change in quantity is greater than the percentage change in price. If the price increases, enough fewer units are sold at the higher price that total revenue actually decreases. Likewise, with elastic demand, il price decreases, total revenue increases. Even though each unit is now sold at a lower price, there are enough more units sold that total revenue increases. Thus, for elas tic demand, changes in price and the resulting total revenue move in the oppo- site direction. A higher price causes total revenue to decrease, while a lower price causes total revenue to increase. These relationships for elastic demand are illustrated for the demand curve shown in Figure 3.2. For this demand curve, at a price of $10,2 units of Une od uct are demanded, and the total revenue the firm receives is $10 x 2 units, or $20.11 the price decreases to $9, the quantity demanded increases to 3 units, and the total revenue increases to $27. Demand is elastic in this range because total revenue increases as the price decreases. TABLE 3.1 Values of Price Elasticity of Demand Coefficients VALUE OF ELASTICITY ELASTICITY RELATIONSHIP AMONG COEFFICIENT DEFINITION VARIABLES Tel > 1 Elastic demand %AQ,> AP IMPACT ON TOTAL REVENUE Price increase results in lower total revenue. Price decrease results in higher total revenue. Price increase results in higher total revenue. Price decrease results in lower total revenue. Price increase or decrease has no impact on total revenue %40, <%AP lol <1 Inelastic demand %40,-%AP Tel-1 Unit elastic or unitary elasticity ihr erstation of the chapter

Answer 1

Price elasticity of demand is the change of quantity when nothing but the price changes. This is shown with negative sign as there is an inverse relation between the price and quantity demanded , but for simplicity absolute values are used.

The revenue of a good depends on the price elasticity of demand.

If the Ed is elastic, ie is greater than 1, it implies a small change in price would lead to a greater change in quantity demanded, ie if the price increases by small amount, there would be a large reduction in the quantity, which would mean that the revenue would decline.

Eg: If the price is $2 and Qd= 10 units , then revenue would be $20

Now if the price is increased to $3, the Qd would be 5 units, the revenue would be $15. This is elastic demand and would mean lowering revenue when the price is increased and vice versa.

When it is inelastic demand , then it implies the change in price would have less impact on change in quantity demanded ie Ed<1

Eg: if the price is $2 and Qd= 10 units, revenue=$20

the price increases to $3, Qd= 8 units, revenue=$24

So this is inelastic demand and here an increase in price would increase total revenue and vice versa

In case when Ed is unit elastic, ie the change in price would be equal to change in quantity demanded, then there would be no change in revenue.

The same in shown in the graph in the question.