Effects of Elasticity on the Responsiveness of Revenue to Price Changes Along Linear Demand Functions

Ted Black

Consumer Economics

Microeconomics

Interactive Tutorial

The student is expected to understand the following aspects of the relationship between elasticity and revenue, given price changes on a linear demand schedule: revenue changes in response to price changes depend upon elasticity; elasticity changes along a linear demand function ; when elasticity is greater than one (elastic), price changes and revenue changes are inverse; when elasticity is less than one (inelastic), price changes and revenue changes are direct; the slope and intercept on a linear demand function affect elasticity at a given level of quantity demanded