00:01
So here let's start off with just the basic definition of price elasticity, which is a measure of responsiveness.
00:06
How does quantity respond when the price change, right? if the price goes up 1%, what happens to quantity? we're told that this elasticity is minus 0 .75.
00:17
And the key thing is now we have to think about revenue, but revenue and price elasticity share the same values, right? they're both a function of prices and quantities.
00:28
So we can use the price elasticity term to say something about revenue by rearranging this equation, right? let me multiply each side by p.
00:40
So the percent change in q is equal to negative 0 .75 the percent change in p.
00:50
Right.
00:51
So what does that tell us? let's suppose that prices go up by 1 percent.
00:56
That means quantity will go down by negative 0 .75%.
01:01
And if prices go up by, say, 4%, that means that quantity will decrease by 3%...