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Total Revenue

Terms in this set (17)

total revenue
amount paid by buyers and received by sellers of a good (TR=PxQ)
price increase
if demand is inelastic total revenue increases
if demand is elastic total revenue decreases
inelastic demand
increase in price equals increase in total revenue
elastic demand
price increases equals total revenue decreases
advertising
makes demand more inelastic
consumers buy the product at any price
total revenue increases even as the price increases
when demand is inelastic
elasticity < 1
price and total revenue more in same direction
when demand is elastic
elasticity > 1
price and total revenue move in opposite direction
if demand is unit elastic
elasticity = 1
total revenue remains constant when price changes
income elasticity of demand
how much the quantity demanded of a good responds to a change in consumers income
(% change in quantity demanded divided by the % change in income)
normal goods
positive income elasticity equals increase in income and quantity demanded
necessities
smaller income elasticities
luxuries
larger income elasticities
inferior goods
negative income elasticities equals increase in income and decrease in quantity demanded
cross price elasticity of demand
how much the quantity demanded of one good responds to a change in the price of another good
(% change in quantity demanded of the first good divided by the % change in the price of the second good)
substitutes
goods typically used in place of one another
price and quantity demanded increases
positive cross price elasticity
complement
goods that are typically used together
price increase and decrease in quantity demanded
negative cross price elasticity
THIS SET IS OFTEN IN FOLDERS WITH...