larger percentage changes, and the absolute value of the elasticity measure declines Between points C and D, for example, the price elasticity of demand is −1.00, and between points E and F the price elasticity of demand is −0.33 On a linear demand curve, the price elasticity of demand varies depending on the interval over which we are measuring it For any linear demand curve, the absolute value of the price elasticity of demand will fall as we move down and to the right along the curve The Price Elasticity of Demand and Changes in Total Revenue Suppose the public transit authority is considering raising fares Will its total revenues go up or down? Total revenue is the price per unit times the number of units sold [1] In this case, it is the fare times the number of riders The transit authority will certainly want to know whether a price increase will cause its total revenue to rise or fall In fact, determining the impact of a price change on total revenue is crucial to the analysis of many problems in economics We will two quick calculations before generalizing the principle involved Given the demand curve shown in Figure 5.2 "Price Elasticities of Demand for a Linear Demand Curve", we see that at a price of $0.80, the transit authority will sell 40,000 rides per day Total revenue would be $32,000 per day ($0.80 times 40,000) If the price were lowered by $0.10 to $0.70, quantity demanded would increase to 60,000 rides and total revenue would increase to $42,000 ($0.70 times 60,000) The reduction in fare increases total revenue However, if the initial price had been $0.30 and the transit authority reduced it by $0.10 to $0.20, total revenue Attributed to Libby Rittenberg and Timothy Tregarthen Saylor URL: http://www.saylor.org/books/ Saylor.org 239