demanded changes by a larger percentage than price (i.e., if demand is price elastic), total revenue will change in the direction of the quantity change If price changes by a larger percentage than quantity demanded (i.e., if demand is price inelastic), total revenue will move in the direction of the price change If price and quantity demanded change by the same percentage (i.e., if demand is unit price elastic), then total revenue does not change When demand is price inelastic, a given percentage change in price results in a smaller percentage change in quantity demanded That implies that total revenue will move in the direction of the price change: a reduction in price will reduce total revenue, and an increase in price will increase it Consider the price elasticity of demand for gasoline In the example above, 1,000 gallons of gasoline were purchased each day at a price of $4.00 per gallon; an increase in price to $4.25 per gallon reduced the quantity demanded to 950 gallons per day We thus had an average quantity of 975 gallons per day and an average price of $4.125 We can thus calculate the arc price elasticity of demand for gasoline: Percentage change in quantity demanded=−50/975=−5.1% Unexpected text node: '=' Price elasticity of demand=−5.1%/6.06%=−0.84 Attributed to Libby Rittenberg and Timothy Tregarthen Saylor URL: http://www.saylor.org/books/ Saylor.org 242