WOLFRAM|DEMONSTRATIONS PROJECT

Constant Price Elasticity of Demand

​
A
5
ϵ
-1
p
0
2
quantity scale
10
revenue scale
14
The inverse demand function
P=A
1
ϵ
Q
has a constant price elasticity of demand
ϵ
. The revenue is shown as an area in the upper quadrant and is also plotted as the height of the function in the lower quadrant. As the price falls, the revenue area decreases for inelastic demand (
-1<ϵ<0
), remains constant for unit elastic demand (
ϵ=-1
), and increases for elastic demand (
ϵ<-1
).