Revenue and Elasticity

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Revenue is equal to price times quantity and is represented by the shaded rectangles. Elasticity measures the responsiveness of the quantity demanded to a change in price. The effect of a price change on revenue depends on the elasticity of demand, as can be seen through varying the slope of the demand curve. Consider an initial price and quantity of 1 and 1 for a revenue, shaded in light blue, of 1. Now vary the price to see a new revenue shaded in yellow: mouse over the yellow to see the amount.

Contributed by: Fiona Maclachlan (March 2011)
Open content licensed under CC BY-NC-SA




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