Price Elasticity of Demand

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 As We Move Down the Demand

curve, TOTAL REVENUE first increases,

reaches a maximum (or peak), and
then decreases.
TR

Qd
2
Another Curve

All downward sloping

linear demand curves
can be divided into 3
distinct sections that
differ in elasticity.
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 P Ed > 1  Elastic Section

Ed = 1  Unitary Elastic

Section

Ed < 1  Inelastic

Section

Qd/ut
TR

Qd/ut
4
Price Changes:

If a price change causes TR to move in the

opposite direction from the price change,
we are in the elastic portion of the
demand curve.

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Price Changes:

Therefore,

if P TR
or
ifP TR

Elastic Section of Demand Curve

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Price Changes:

If a price change causes TR to move in

the same direction as the price change,
we are in the inelastic portion of the
demand curve.

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Price Changes:

Therefore,

if P TR
or
ifP TR

Inelastic Section of Demand Curve

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 Remember:

P P Relatively
Relatively elastic
inelastic

Q Q

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 Remember:

P P
Relatively
- 1.10
elastic
- 5.50

Relatively - .95
inelastic
- .15

Q Q
Avg. = - .625 Avg. = - 3.225
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 AND,

When:

Ed > 1elastic demand  TR  with a P 

Ed = 1  unitary demand  TR is maximized.

Ed < 1  inelastic demand  TR  with P 

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