Chapter 19 Elasticity of Demand
Affects Total Revenue
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I. Special Notes
A. Math Review is a short dynamic review of basic math skills for microeconomics from R. L. Reynolds of Boise St. University.
B. Some may want to review supply and demand principles explained in Chapter 4.
C. McConnell Economics Books, including the 18th edition,
are one of many source of material included in this chapter.D. Our Current Events Internet Library has an interesting economics section.
II. Elasticity of demand measures the responsiveness of quantity demanded to changes in price, income, and the price of related goods.
III. Price elasticity of demand
A. Price elasticity of
demand measures the effect of price changes on
quantity demanded.
B. Sometimes a price increase causes quantity
bought to decrease significantly, other times not so much.
1. High airfares for a
luxury vacation may cause you to vacation locally.
2. High coffee prices
for people who think of coffee as a necessity may not change quantity demanded
very much.
C. The more quantity changes because of a price
change, the more elastic is demand.
1. Relative change will
be measured as a one dollar change at higher prices is not as significant as at
lower prices.
2. An easy way to measure
relative change is to use percent change.
D. Elasticity of demand is
important because it predicts what may happen to total revenue received when
a company
changes the price
of a product.
E.
Elasticity
from Samuel L. Baker, Ph.D. of the University of South
Carolina provides problems to help with the understanding of elasticity.
F. Elasticity can be measured
quantitatively.
1. The
Coefficient of elasticity of demand for product x
measures its price elasticity.
2. Delta, 
,
means change.
F. Elasticity can be measured
quantitatively.
1. The
Coefficient of elasticity of demand for product x
measures its price elasticity.
2. Delta, ,
means change.
