Microeconomics · free preview
Elasticity and Total Revenue
Revenue is price times quantity, so whether a price change helps or hurts the seller depends entirely on which side of unit elasticity the market sits, and the revenue rectangle makes it visible.
1. Revenue is a tug of war
Revenue is a tug of war
2. The rectangle picture
The rectangle picture
3. Working an example
Working an example
4. Elasticity as a diagnostic
Elasticity as a diagnostic
5. Revenue after a price cut
A bakery's bread demand is elastic, with elasticity around 2 over its usual price range. If the bakery cuts the price of a loaf by 5 percent, what happens to its total revenue from bread?
6. The bumper harvest
A drought-free year delivers a bumper harvest that shifts the supply of a staple crop sharply right. Demand for the staple is inelastic. What happens to the crop's total revenue?
7. Revenue after the discount
A museum charges 16 dollars admission and sells 500 tickets a week. It lowers the price to 14 dollars and weekly sales rise to 600 tickets. Compute total revenue at the new price in dollars and write the number.
8. The inelastic discount
A good's demand has elasticity around 0.4, and the seller cuts its price by 10 percent. What happens to total revenue?
9. The paradox of plenty
Perfect weather delivers a bumper harvest, shifting the supply of a staple food sharply right. Food demand is inelastic. What happens to farmers' total revenue?
10. Revenue after the cut
A cinema charges 18 dollars and sells 400 tickets weekly. It cuts the price to 16 dollars and sells 440 tickets. Compute the new weekly revenue in dollars, and write the number.
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