Price elasticity and revenue

Price elasticity is how responsive demand is to a change in price.

If product/service A (i.e Gas) is price inelastic it would mean an increase in price would lead to a less than proportional decrease in consumer demand.

Why? : Because there's no alternatives to gas and people are willing to pay more as it could be argued it's a necessity.

If product/service B (i.e Chocolate Bar) is price elastic it would mean an increase in price would lead to a larger than proportional decrease in consumer demand.

Why? : There are many alternatives to a chocolate bar and luxuries can be cut down on.

The correlation with revenue is likely to be the concept of determining price elasticity to set prices to maximise revenue intake.

Many things can effect price elasticity:

Brand loyalty,
Scarcity,
Whether said product/service is a necessity etc.. etc..

Could you please elaborate on this point?

Companies have to price their product where they're able to maximise revenue/profits. Theoretically, determining the PeD (Price Elasticity of Demand) for said product would aid in finding what price to charge to attain a certain level of demand.

that makes perfect sense.

In my textbook however, it states

" It is important to remember that the PED varies along the length of the demand curve"

"Over the full price range demand is perfectly elastic at the price axis and perfectly inelastic at the quantity axis"

"At points on the demand curve above X demand is progressively more price elastic at the price axis and perfectly inelastic at the quantity axis"

I cant seem to make sense of these statements

its accompanied with this diagram

https://www.google.co.uk/search?q=mr+and+ar+curve&source=lnms&tbm=isch&sa=X&ei=cuvTU4zGMMKk0QWp9oHgBg&ved=0CAYQ_AUoAQ&biw=1280&bih=923#facrc=_&imgdii=_&imgrc=YKexvmUy49tW8M%253A%3BmC21Mtof45gVmM%3Bhttp%253A%252F%252F2.bp.blogspot.com%252F_ba4p_CLhTDk%252FTL366QqFI0I%252FAAAAAAAAAIg%252FxJIIzkV0HJc%252Fs1600%252FMonopoly%252BFig.png%3Bhttp%253A%252F%252Fsgsmicroblog.blogspot.com%252F2010%252F10%252Frelationship-between-ar-and-mr-in.html%3B614%3B360

That's the demand curve (AR). MR is always twice as steep as AR, because that's just the mathematics behind how they're calculated. The book doesn't sound like it explains it clearly enough. I would recommend finding another source. Try tutor2u's website:

http://www.tutor2u.net/economics/revision-notes/

http://www.tutor2u.net/economics/revision-notes/a2micro-profit1.jpg

Economic profit= sales revenue - economic cost

accounting profit= sales revenue - accounting costs

economic cost- accounting costs + opportunity costs

How does the image above show this?

Are you self studying? Or just preparing for the next academic year? Examination board?

prepearing for next year, edexcel exam board

PED question should be something that you should have covered in Unit 1 perhaps it would be a good idea to go over your notes again. I would suggest concentrating more on general knowledge of the UK Economy for Unit 4 (anforme Uk Economy 2003-2013) and concentrate on easier topics for unit 3 like integration.

is this topic difficult?

PEDi is an extension from unit 1 just adding revenue maximisation. Accounting profit and economic profit is just theoretical. It is easier when you get support from school.

i understood accounting profit and economic profit after watching this.

http://www.youtube.com/watch?v=06j_zPdPWOY

surely it cant be hard to understand the relationship between PED and revenue.