lesson 3.3 questions

what factors determine a company's total revenue?

price of goods and the amount sold.

why is this the case?

because an inelastic good's demand doesn't change with price.

why does demand generally become more elastic over time?

because people are able to find substitutes and change behaviors. competition increases amongst producers and suppliers.

do higher prices lead to increased revenues for a company?

higher prices don't always lead to higher revenues because the consumer will most likely not gravitate towards the higher prices.

suppose demand for a product is elastic at a given price what will happen to the company's total revenue if it raises the price of that product? why?

the company's total revenue will make less if it raises the price of the product because the law of demand implies that an increase in price of a good will always decrease the quantity demanded.

how does the percentage of your budget you spend on a good affect it's elasticity?

the percentage of your budget you spend on a good affects its elasticity because the amount a person is willing to spend on a good can't be too expensive or they won't buy it.

what is elasticity of demand?

the way economists describe the way that consumers respond to a price change. It measures how drastically buyers will cut back or increase their demand for a good when the price rises or falls.