Session 5

Examples of:

Elastic :

Δ Q > Δ P

Inelastic:
Δ Q < Δ P

Unit elastic:
Δ Q = Δ P

Perfectly inelastic -
Δ Q = 0
e.g; competitive market eg a potato market where everyone knows the proce of each other's potato.

Perfectly elastic

Note:

1.When slope is constant, elasticity varies from 0 to α
2.As you raise price,elasticity also increases
3.e = Lower part of the curve/upper part of the curve
4.Revenue is a seller concept

Total revenue(TR) = Price x Quantity - It is the price paid by buyers and received by sellers of a good

Average revenue (AR) = TR/Q = PxQ/Q = P - It is the total revenue divided by the number of units sold. AR curve is the demand curve itself.

Marginal revenue(MR) = ΔTR/ΔQ - It is the extra revenue that the seller gets by offering an extra unit for sale.

Note:

1. MR is steeper than AR
2. MR is the slope of the total revenue curve
3. At maximum TR, MR is zero
4. AR and MR curve have the same vertical intercept
5. TR will increase if demand is inelastic
6. TR will decrease if demand is elastic
7. TR will remain same if demand is unitary elastic