(8th edition) (the pearson series in economics) robert pindyck, daniel rubinfeld microecon 152

CHAPTER 4 • Individual and Market Demand 127

Price of
movie
tickets 9
($)

6

F IGURE 4.11

UNIT-ELASTIC DEMAND CURVE
When the price elasticity of demand is
−1.0 at every price, the total expenditure
is constant along the demand curve D.

3
D

600 900

1800
Thousands of movie tickets

a year (a 15-percent decrease). Total expenditure on chicken will also fall, from $200
(100 pounds * $2 per pound) to $187 (85 pounds * $2.20 per pound).
ISOELASTIC DEMAND When the price elasticity of demand is constant all
along the demand curve, we say that the curve is isoelastic. Figure 4.11 shows
an isoelastic demand curve. Note how this demand curve is bowed inward. In
contrast, recall from Section 2.4 what happens to the price elasticity of demand
as we move along a linear demand curve. Although the slope of the linear curve is

constant, the price elasticity of demand is not. It is zero when the price is zero,
and it increases in magnitude until it becomes infinite when the price is sufficiently high for the quantity demanded to become zero.
A special case of the isoelastic curve is the unit-elastic demand curve: a demand
curve with price elasticity always equal to - 1, as is the case for the curve in
Figure 4.11. In this case, total expenditure remains the same after a price change.
A price increase, for instance, leads to a decrease in the quantity demanded that
leaves the total expenditure on the good unchanged. Suppose, for example, that
the total expenditure on first-run movies in Berkeley, California, is $5.4 million
per year, regardless of the price of a movie ticket. For all points along the demand
curve, the price times the quantity will be $5.4 million. If the price is $6, the
quantity will be 900,000 tickets; if the price increases to $9, the quantity will drop
to 600,000 tickets, as shown in Figure 4.11.
Table 4.3 summarizes the relationship between elasticity and expenditure. It
is useful to review this table from the perspective of the seller of the good rather
TABLE 4.3
DEMAND

PRICE ELASTICITY AND CONSUMER EXPENDITURES
IF PRICE INCREASES,
EXPENDITURES

IF PRICE DECREASES,
EXPENDITURES

Inelastic

Increase

Decrease

Unit elastic

Are unchanged

Are unchanged

Elastic

Decrease

Increase

• isoelastic demand curve
Demand curve with a constant
price elasticity.

In §2.4, we show that when
the demand curve is linear,
demand becomes more
elastic as the price of the
product increases.