I. the Importance of Price Elasticity of Demand and Cross Elasticity of Demand

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I. The importance of Price elasticity of demand and Cross elasticity of demand 1. Price elasticity of demand (Ed) used to generate the revenue. It shows the percentage change in quantity demanded in response to a one percent change in price. The biggẻ the number, the more people’s respond to the price.

Interpreting values of price elasticity coefficients Perfectly inelastic demand[10] Perfectly elastic demand[10]

Elasticities of demand are interpreted as follows:[10] Value | Descriptive Terms | | Perfectly inelastic demand | | Inelastic or relatively inelastic demand | | Unit elastic, unit elasticity, unitary elasticity, or unitarily elastic demand | | Elastic or relatively elastic demand | | Perfectly elastic demand |

Effect on total revenue

Generally any change in price will have two effects * The price effect: for inelastic goods, an increase in unit price will tend to increase revenue and vice versa. * The quantity effect: an increase in unit price will tend to lead to fewer units sold and vice versa.
The relationship between PED and total revenue: * When Ed = 0, changes in the price do not affect the quantity demanded for the good; price increase will raise the total revenue. * When -1 < Ed < 0, the percentage change in quantity demanded is smaller than that in price => if the price is raised, the total revenue rises, and vice versa. * When Ed = -1, the percentage change in quantity is equal to that in price => change in price will not affect total revenue. * When -∞ < Ed < -1, percentage change in quantity demanded is greater than that in price => price is raised, the total revenue falls, and vice versa. * When Ed is −…...

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^ ^ Price Elasticity of Demand ^ ^

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