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# 经济代写|微观经济学代考Microeconomics代写|Elasticity, Total Revenue, and Demand

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## 经济代写|微观经济学代考Microeconomics代写|Elasticity, Total Revenue, and Demand

Knowing elasticity of demand is useful to firms because from it they can tell whether the total revenue will go up or down when they raise or lower their prices. The total revenue a supplier receives is the price he or she charges times the quantity he or she sells. (Total revenue equals total quantity sold multiplied by the price of the good.) Elasticity tells sellers what will happen to total revenue if their price changes. Specifically:

If demand is elastic $\left(E_D>1\right)$, a rise in price lowers total revenue. (Price and total revenue move in opposite directions.)

If demand is unit elastic $\left(E_D=1\right)$, a rise in price leaves total revenue unchanged.

If demand is inelastic ( $E_D<1$ ), a rise in price increases total revenue. (Price and total revenue move in the same direction.)
The relationship between elasticity and total revenue is no mystery. There’s a very logical reason why they are related, which can be seen most neatly by recognizing that total revenue $(P \times Q)$ is represented by the area under the demand curve at that price and quantity. For example, at point $E$ on the demand curve in Figure 6-3(a), the total revenue at price $\$ 4$and quantity 6 is the area designated by the$A$and$B$rectangles,$\$24$.

If we increase price to $\$ 6$, quantity demanded decreases to 4 , so total revenue is still \$24. Total revenue has remained constant, so the demand curve from point $E$ to point $F$ is unit elastic. The new total revenue is represented by the $A$ and $C$ rectangles. The difference between the old total revenue $(A$ and $B$ ) and the new total revenue ( $A$ and $C$ ) is the difference between the rectangles $B$ and $C$. Comparing these rectangles provides us with a visual method of estimating elasticities.

Figure 6-3(b) shows an inelastic range; Figure 6-3(c) shows a highly elastic range. While in Figure 6-3(b) the slope of the demand curve is the same as in Figure 6-3(a), we begin at a different point on the demand curve (point $G$ ). If we raise our price from $\$ 1$to$\$2$, quantity demanded falls from 9 to 8 . The gained area (rectangle $C$ ) is much greater than the lost area (rectangle $B$ ). In other words, total revenue increases significantly, so the demand curve between points $H$ and $G$ is highly inelastic.

In Figure 6-3(c) the demand curve is again the same, but we begin at still another point, $J$. If we raise our price from $\$ 8$to$\$9$, quantity demanded falls from 2 to 1 . The gained area (rectangle $C$ ) is much smaller than the lost area (rectangle $B$ ). In other words, total revenue decreases significantly, so the demand curve from points $J$ to $K$ is highly elastic.

## 经济代写|微观经济学代考Microeconomics代写|Total Revenue along a Demand Curve

The way in which elasticity changes along a demand curve and its relationship to total revenue can be seen in Figure 6-4. When output is zero, total revenue is zero; similarly, when price is zero, total revenue is zero. That accounts for the two endpoints of the total revenue curve in Figure 6-4(b). Let’s say we start at a price of zero, where demand is perfectly inelastic. As we increase price (decrease quantity demanded), total revenue increases significantly. As we continue to do so, the increases in total revenue become smaller until finally, after output of $Q_0$, total revenue actually starts decreasing. It continues decreasing at a faster and faster rate until finally, at zero output, total revenue is zero.

As an example of where such calculations might come in handy, recall the vanity license plates that we used to illustrate the law of demand in Chapter 4 . A rise in the price of vanity plates of about 29 percent, from $\$ 30$to$\$40$, decreased the quantity demanded about 64 percent, from 60,334 to 31,122 , so the price elasticity of demand was about $0.64 / 0.29=2.2$. Since demand was elastic, total revenue fell. Specifically, total revenue fell from $\$ 1,810,020(\$30 \times 60,334)$ to $\$ 1,244,880(\$40 \times 31,122)$.
Elasticity of Individual and Market Demand
In thinking about elasticity of demand, keep in mind the point made in Chapter 4: The market demand curve is the horizontal summation of individual demand curves. Some individuals have highly inelastic demands and others have highly elastic demands. A slight rise in the price of a good will cause some people to stop buying the good; the slight increase won’t affect other people’s quantity demanded for the good at all. Market demand elasticity is influenced both by how many people drop out totally and by how much an existing consumer marginally changes his or her quantity demanded.

If a firm can somehow separate the people with less elastic demand from those with more elastic demand, it can charge more to the individuals with inelastic demands and less to individuals with elastic demands. Economists call this price discrimination.

# 微观经济学代写

## 经济代写|微观经济学代考Microeconomics代写|Total Revenue along a Demand Curve

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