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Total revenue (TR), not to be confused with total profit, is simply the total d_______ v______ of some quantity of an item sold at a certain p______.

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dollar value, price

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What is the formula for total revenue?

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price, quantity, decrease

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P stands for the -____ of the product, and Q stands for the q_______ sold. The effect of lowering price would be to d_______ total revenue.

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going up

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At the same time, however, the lower price will result in the quantity sold g______ u_, and this will tend to increase total revenue.

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price elasticity of demand.

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So, what will be the net effect of these opposing pressures (the change price divided by the change in quantity demanded? The answer to this question depends on the concept economists call p____ e_________ of d_____.

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flexibility

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Elasticity is a focus on the f___________ of consumers' reactions to a change in price.

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elasticity

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"How sensitive will my customers be to a price change?" could be asked by a retailer who is questioning price e________.

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inelastic

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Price changes from $5 to $10. Quantity changes from 30-20.What is the price elasticity of demand?

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elastic

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A quantity demanded that is not very responsive to a change in price (coefficiency of elasticity is less than 1) is called i___________.

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falls

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A quantity demanded that is quite responsive to a change in price (coefficiency of elasticity is greater than 1) is called e__________.

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rise

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If demand is inelastic and price _____, then total revenue will also fall. (use fingers to trace two curves)

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In the case of Figure 4.1A, the quantity demanded has only changed by 9.52 percent (5/52.5 × 100), just over a half of the price change in percentage terms. This means that the demand is inelastic with a coefficient equal to 0.52 (9.52/18.18) As a result, the demand curve plots as a fairly steep demand curve.

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If demand is elastic and price falls, then total revenue will ____.

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With Figure 4.1B, the percentage change in quantity of 18.18 percent (10/55 × 100) is exactly equal to the percentage change in price. The result is an elasticity coefficient of 1 and is, therefore, unitary elastic. (Note that the resulting demand curve is not a 45-degree line but a rectangular parabola.)

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Use your fingers to understand:

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Finally, the curve in Figure 4.1C is fairly flat and illustrates the fact that the demand here is elastic. In the case of this third product, the percentage change in quantity of 46.15 percent (30/65 × 100) far exceeds the 18.18 percent change in the price. Its coefficient is equal to 2.54.

Page 110

Although it is possible to identify the elasticity of demand in terms of the slope, we must be very careful here, since the slope of a demand curve is not the same thing as elasticity.

Page 110

Although it is possible to identify the elasticity of demand in terms of the slope, we must be very careful here, since the slope of a demand curve is not the same thing as elasticity.

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Explain Figure A: Three Different Elasticities

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In Figure A, at the top half of the demand curve, the demand is elastic. Figure B shows that as the price drops from $10 to $5, total revenue increases. At the midpoint, at a price of $5, demand is unitary and total revenue is maximum. As prices are reduced below $5, Figure A shows that demand is inelastic, and Figure B shows that total revenue falls.

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Explain Figure B: Three Different Elasticities

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elasticity

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Explain Figure C: Three Different Elasticities

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substitutes (example- any veggie could substitute a tomato, but few consider biking instead of using a car)

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Explain the graphic: Elasticity and Total Revenue

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elastic (ex- high priced autos very elastic, a spice is very inelastic)

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Use your finger to trace the paths of Perfect Inelastic Perfect Elasticity and Unitary Elastic

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greater

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We have seen the importance of price elasticity to business. Whether a firm's total revenue will increase or decrease as the result of a price change depends solely on the _____________ of demand of the product.

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the more similar and the more available are the number of available substitutes

the larger is the percentage of one's income that is spent on the product

the longer is the period involved

the larger is the percentage of one's income that is spent on the product

the longer is the period involved

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The more the s______________ that are available for any particular commodity, the greater is the elasticity of demand for that commodity.

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excise tax

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A second determinant of price elasticity is the percentage of household income spent on the commodity. In general, we can say that the more one spends on a particular commodity (as a percentage of income), the more _______ is the demand for that commodity.

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inelastic

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The longer the period that is involved, the g________ the elasticity of demand tends to be. In summary, the more elastic the demand for a product:.

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substitutes

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In summary, the more elastic the demand for a product:

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Elasticity, supply

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a sales tax imposed on a particular product like alcohol, tobacco or petro is called an __________ ___

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responsiveness,

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The more _________ the demand for a product, the larger is the percentage of a sales (or excise) tax the consumer will pay

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Another way to look at this is that since there are few s___________ for products with inelastic demand, the higher price will not have a big effect on consumers and they will be more willing to pay a larger percentage of the tax and a higher price.

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____________ of __________ is the responsiveness of quantity supplied to a change in price and is a similar definition for elasticity of demand

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It may be helpful to think of elasticity as a concept that measures the r________________ of one variable to a change in a related variable. To summarize, the most common application is the responsiveness of quantity demanded to a change in price, which is called price elasticity of demand or, simply, demand elasticity.

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Elasticity of Demand Formula-Step 1

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Elasticity of Demand Formula-Step 2

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Elasticity of Demand Formula-Step 3

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Elasticity of Demand Formula-Step 4

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Elasticity of Demand Formula-Step 5

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Elasticity of Demand Formula-Step 6

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Elasticity of Demand Formula-Step 7

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Elasticity of Demand Formula-Step 8

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Elasticity of Demand Formula-Step 9

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Elasticity of Demand Formula-Step 10

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