demand, elasticityLet’s say the point price elasticity of demand equals 1. My book says that in this case changing price doesn’t change total revenue. But by my calculations over an interval, it’s not true, it changes, but very little. Is that true?
And another question to this topic. Same book says that if point price elasticity of demand is more than 1, making price lower makes total revenue bigger. By my calculations across an interval, most of the time it’s true, but when elasticity is very close to 1, this statement can be false. Am I right?
Elasticity is really a calculus concept, even though it’s not taught that way in undergrad courses. All the standard results refer to point and not interval elasticity, with the understanding that they are approximately true for interval elasticities.
Your calculations are based on unit changes - which is an approximation to the infinitesimally small changes elasticity is really talking about. Instead of calculating for a 1% change in price, re-do your calculation for a 0.0001% change (or smaller) and you’ll see that the claims of the book are true.
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