# Chapter Four. Total Revenue Price x Quantity = Total Revenue (TR) \$10 x 100 = \$1,000 P \$10 100 Q SDSD.

## Presentation on theme: "Chapter Four. Total Revenue Price x Quantity = Total Revenue (TR) \$10 x 100 = \$1,000 P \$10 100 Q SDSD."— Presentation transcript:

Chapter Four

Total Revenue Price x Quantity = Total Revenue (TR) \$10 x 100 = \$1,000 P \$10 100 Q SDSD

The Law of Diminishing Marginal Utility The additional satisfaction one receives from further consumption will fall at some point

When Income Changes There is a Shift in the Demand Curve

Elasticity Generally how responsive economic agents are to changes in circumstance. How responsive one variable is to changes in another.

Price Elasticity of Demand How responsive consumers are to changes in price. % Qd / %P = (Qd / Qd) / (P / P) Elastic > 1 Consumers are responsive Unit Elastic = 1 Balanced response Inelastic < 1 Consumers are unresponsive

Determinants of Price Elasticity: the influence of substitution DEMAND 1. In the long run the demand curve is more elastic e.g. ed for gas during the 70s 2. The less of a necessity, the more elastic is the demand curve, e.g., insulin vs. cheesecake 3. The more narrow a good is defined, the more elastic is the demand curve, e.g., cigarettes vs. Marlboro

Supply 1. Instantaneous, or momentary, supply es < 1 2. Short run supply curve is more elastic because substitution is possible 3. Long run supply curve is very elastic

Price Elasticity of Supply % Qs / %P = (Qs / Qs) / (P / P) Elastic > 1 Firms are responsive Unit Elastic = 1 Balanced response Inelastic < 1 Firms are unresponsive

Where do households spend most? Households spend about 40% on housing

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