Demand Elasticity and Total Revenue

Vocabulary flashcards covering unit elasticity, relatively elastic, perfectly elastic, relatively inelastic, perfectly inelastic demand curves, and the relationship between demand elasticity and total revenue.

Unit Elasticity ($e = 1$)

A condition where a percentage change in price leads to an equal percentage change in quantity demanded, such as a $10\%$ increase in price resulting in a $10\%$ decrease in quantity demanded.

Price Elasticity of Demand Formula ($e$)

The ratio that measures responsiveness to price, expressed as $e = \frac{\%\Delta Q}{\%\Delta P}$.

Relatively Elastic Demand Curve

A relatively flatter demand curve showing that consumer responsiveness to a small percentage change in price is large.

Perfectlys Elastic Demand ($e = \infty$)

A condition represented by a horizontal demand curve where price is fixed, calculated as $e = \frac{\%\Delta Q}{\%\Delta P} = \frac{\text{any number}}{0} = \infty$.

Relatively Inelastic Demand Curve

A steeper demand curve reflecting a low responsiveness of quantity demanded to price changes, where elasticity approaches zero.

Perfectlys Inelastic Demand ($e = 0$)

A condition represented by a vertical demand curve where quantity demanded remains completely unchanged ($\Delta Q = 0$), calculated as $e = \frac{\%\Delta Q}{\%\Delta P} = \frac{0}{\text{any \%}} = 0$.

Total Revenue ($TR$)

The product of the price per unit and the quantity sold, calculated as $TR = P \times Q$.

Total Revenue Relationship with Elastic Demand

An inverse relationship where an increase in price reduces total revenue ($P \uparrow \rightarrow TR \downarrow$) because consumers go somewhere else, and a decrease in price raises total revenue ($P \downarrow \rightarrow TR \uparrow$).

Total Revenue Relationship with Inelastic Demand

A direct relationship where an increase in price increases total revenue ($P \uparrow \rightarrow TR \uparrow$) and a decrease in price decreases total revenue ($P \downarrow \rightarrow TR \downarrow$).