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Exhibit 22. Elasticity and Total Expenditure
#cfa #cfa-level-1 #economics #has-images #microeconomics #reading-13-demand-and-supply-analysis-introduction #study-session-4
it does not matter whether we are dealing with the demand curve of an individual consumer, the demand curve of the market, or the demand curve facing any given seller.
The total expenditure by buyers becomes the total revenue to sellers in a market.
If demand is elastic, a fall in price will result in an increase in total revenue as a whole, and if demand is inelastic, a fall in price will result in a decrease in total revenue.
Clearly, if the demand faced by any given seller were inelastic at the current price, that seller could increase revenue by increasing its price.
Because demand is negatively sloped, the increase in price would decrease total units sold, which would almost certainly decrease total cost. So no one-product seller would ever knowingly choose to set price in the inelastic range of its demand.
The total expenditure by buyers becomes the total revenue to sellers in a market.
If demand is elastic, a fall in price will result in an increase in total revenue as a whole, and if demand is inelastic, a fall in price will result in a decrease in total revenue.
Clearly, if the demand faced by any given seller were inelastic at the current price, that seller could increase revenue by increasing its price.
Because demand is negatively sloped, the increase in price would decrease total units sold, which would almost certainly decrease total cost. So no one-product seller would ever knowingly choose to set price in the inelastic range of its demand.
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