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price elasticity of demand

to raise revenue you can both raise or lower the price, it depends on how sensitive the consumers will be

the law of demand: more of a good will be bought the lower its price, less will be bought the higher its price, ceteris paribus

(price) elasticity of demand measures the responsiveness of quantity demanded to a change in the product price

elasticity demand (ed) = % change in quantity demanded/ % change in price

inverse or negative change

rather than absolute change

not only the dollar amount of the price change but also how this compares to where we started

the bigger the number the more people respond to the change, the smaller the number the less they respond

take the absolute value

must be the case that the size of the price change is greater than the size of the quantity change

large price change to create a small quantity demanded reaction, if the elasticity of demand is less than 1 people don't react much to price changes, they are insensitive to price changes or their demand is inelastic

total revenue = price per unit times the number of units sold

greater than 1 can only be true if the quantity change is greater than the size of the price change

indicates a relatively large quantity demanded reaction to relatively small price change, or demand is elastic

equal to 1 can be true if the size of the quantity change is going to be equal to the size of the price change. the changes exactly offset one another, that is a 10% increase in price results in a 10% decrease in quantity demanded and there would be no change in total revenue

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if you give a consumer identical successive units of any one consumer good, each unit consumed yields less and less happiness, or satisfaction (economists use the term "utility" instead of "satisfaction") than the previous unit

this is known as the law of diminishing marginal utility, where marginal utility is the amount added to total utility with the last unit you've consumed; or the change in total utility over the change in quantity

to reach maximum utility, consumption needs to stop where marginal utility is equal to zero

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cost theory in the short run

quantity on the horizontal axis and total cost on the vertical axis, draw in the total cost curve and the total variable cost curve and the fixed cost curve

the total cost and total variable costs are parallel

total coast is equal to total variable cost plus fixed cost