A demand schedule is a table that relates the quantity demanded (Q) to the price (P). Likewise, a demand curve is a graph that relates the quantity demanded to the price. We will now work with a demand function which is a formula which relates the quantity demanded and price.

Consider the following demand function: Q=10-2P

(a)Draw the demand curve

(b)Determine the elasticity of demand when (i)p=1 and (ii) p=3 and confirm that the elasticity of demand increases when price is increased from p=1 to p=3 i.e. the price elasticity of demand increases when you move up the demand. Hint: Elasticity of demand=slope x (P/Q)

(c)What price will maximize total revenue? Hint: Elasticity of demand is equal to 1 at the price that maximizes total revenue.