1. Perfectly Elastic and Perfectly Inelastic Demand (a)  Perfectly elastic demand means constant price and a horizontal demand curve  Perfectly inelastic demand means constant quantity demanded and a vertical demand curve Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.

2. Perfectly Elastic and Perfectly Inelastic Demand (b) Figure 3.2 Page 57 Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved. Perfectly Elastic Demand Curve for Soybeans 0 1.60 D3D3 Quantity Demanded (tonnes) Price ($ per tonnes) Perfectly Inelastic Demand Curve for Insulin 01000 Quantity Demanded (litres) Price ($ per tonnes) D4D4 In a monopoly In a perfectly competitive market

3. Perfectly Elastic and Perfectly Inelastic Demand (b) Perfectly Elastic Example: A soft drink from two campus machines located side by side. If the two machines offer the same soft drink for the same price, some people might buy from one machine and some from the other. However, if one machine's price is higher than the other, by even a small amount, the quantity demanded will drop to zero. The demand for a good that has a perfect substitute is perfectly elastic.

4. Total Revenue and the Price Elasticity of Demand  A price change causes total revenue to change in the opposite direction when demand is elastic  A price change causes total revenue to change in the same direction when demand is inelastic  A price change does not affect total revenue when demand is unit-elastic Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.

5. Revenue Changes with Elastic Demand Figure 3.3 Page 59 Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved. Demand Curve for Videos 1 2 3 4 5 05001000 Quantity Demanded (videos rented each day) Price ($ to rent a video) 1500 A BC D

6. Total Revenue and the Price Elasticity of Demand (c) Figure 3.5 Page 60 Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved. Demand Elasticity and Changes in Total Revenue Elastic Demand Inelastic Demand Unit-Elastic Demand Price Change up down up down up down Change in Total Revenue down up down unchanged

7. Elasticity and a Linear Demand Curve (b) Figure 3.6 Page 62 Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved. 0 1 23 Quantity Demanded (millions of sodas) Market Demand and Supply Curves for Milk Price ($ per soda) 1 2 3 4 5 Market Demand Schedules for Sodas 5 4 3 2 1 0 0 1 2 3 4 5 9.00 2.33 1.00 0.43 0.11 Price ($ per soda) 4 Price Elasticity of Demand (e d ) Quantity Demanded (millions of sodas) 5 e d > 1 e d = 1 e d < 1