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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 do 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
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