Microeconomics: Price Elasticity, Demand Curve and Total Revenue

MICROECONOMICS 1
MICROECONOMICS
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MICROECONOMICS 2
NUMBER 1.
The price elasticity of demand refers to an economic measure which is used in showing how the
quantity demanded of a given commodity reacts to its alteration of price (Anderson et al 2012,
p.2010). Only the price change of the service or good is considered when the facts are held
constant. The price elasticity of demand indicates the change in percentage of a certain good or
service quantity demanded in response to price change by one percent. It’s always greater than
one and negative for goods and services which obey the law of demand but the negative sign is
ignored for the purposes of avoiding ambiguity. Only Giffen and Veblen goods have price
elasticity of demand being positive.
The price elasticity of supply is an economic measure which is used in showing how the quantity
supplied of a given good or service reacts to its price change (Norman 2014, p.334). Only the
price is considered when all the factors are kept constant. It is always positive and greater than
one. The price elasticity of supply is indicated in numerical form as a dividend of the quantity
supplied percentage change and the price change percentage.
An elastic demand refers to a demand in which a very slight alteration of the factors determining
demand especially the price of a given service or good results to a great change in the quantity
demanded of that service or good. It is usually greater than one. An inelastic demand refers to a
demand in which the alteration of the factors determining demand especially the price of a given
good or service results to a little or no change at all in the quantity demand of that good or
service.
NUMBER 2.

MICROECONOMICS 3
The slope of the demand curve and the demand elasticity both measure the consumers’
responsiveness to quantities of commodities demanded due to a change in prices of the
commodities however the two concepts differ. The slope of the demand curve measures the
steepness of the demand curve using the units of measurement of the price and quantity. On the
other hand, the elasticity of demand measures consumer’s responsiveness to the quantity of a
commodity demanded due to a change in price of the given commodity.
A negatively sloped straight line demand curve has a constant negative slope but the negative
sign is ignored for the purpose of avoiding ambiguity. Considering the elasticity of demand
along the demand curve which is negatively sloped and straight, its values change at each point
along the demand curve. When the slope of the demand curve is steeper, then the elasticity of the
product is less elastic. This means that elasticity of demand decreases as we move up along the
demand curve (lower quantities demand and higher prices) and increases as we move down the
demand curve (higher quantities demanded and lower prices).
The slope of the demand curve and the elasticity of demand differ as explained in case the
demand curve is vertical or horizontal. In measuring the slope of the demand curve, the
numerator is the change in values of price while the denominator is the change in values of the
quantity demanded. On the other hand in measuring the demand elasticity, the change in the
price values percentage is the numerator and the change in the quantities demanded percentage is
the denominator. For the case of a vertical demand curve, the slope of the demand curve is
infinite as there is a change in price but the change in quantity demanded is zero. The elasticity
of demand is on the other hand is zero as there is no any quantity percentage change but there is
a price percentage change. In this case, we say that elasticity is perfectly inelastic. For the case of