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When we calculate price
elasticity of demand, we image that only _______ is changing, while we
hold constant all other influences on quantity demanded, such as buyers
incomes, the prices of other goods, and so on.
On the one hand, each unit sold
can be sold for more, tending to increase revenue. On the other hand,
fewer units will be sold, which works to decrease revenue. Which one
THe answer depends on the price
elasticity of demand for the good. Note that the total revenue of
sellers in a market (TR) is the price per unit ℗ times the quantity that
people buy. TR= P x Q. When we raise price, p goes up, but q goes down.
What happens to the product depends on which one changes by a larger
Keep in mind that while price
elasticity measures the sensitivity of demand to price as we _________
the demand curve form one point to another, an ncome elasticity tells us
the relative shift of the demand curve- the percentage increase in
quantity demanded at a given price.
With a ______ (as with an income
elasticity) the sign matters. A positive cross price elasticity means
that the two goods are substitutes: A rise in the price of one good
increases demand for the other good.
Generally speaking demand for a good tends to be more elastic...
1. the less we regard the good as
a necessity, 2. the easier it is to find substutitues for the good 3.
the greater the share of householders' budget that is spent on the good,
and 4. the more time we allow for quantity demanded to respond to the
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