econ ch. 5

econ ch. 5 - THE PRICE ELASTICITY OF DEMAND the price...

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1 THE PRICE ELASTICITY OF DEMAND - the price elasticity of demand compares the percent change in quantity demanded to the percent change in price as we move along the demand curve - measure that doesn’t depend on the units in which a good is measured - % change in quantity demanded = change in quantity demanded/initial quantity demanded *100 - % change in price = change in price/initial price *100 - price elasticity of demand = % change in quantity demanded/% change in price - the PRICE ELASTICITY OF DEMAND is the ratio of the percent change in the quantity demanded to the percent change in the price as we move along the demand curve - the law of demand says that demand curves slope downword - the larger the price elasticity of demand, the more responsive the quantity demanded is to the price - that is, the quantity demanded will fall by a relatively small amount when the price rises - inelastic demand USING THE MIDPOINT METHOD TO CALCULATE ELASTICITIES - price elasticity of demand compares the percent change in quantity demanded with the percent change in price - the MIDPOINT METHOD is a technique for calculating the percent change - in this approach, we calculate changes in a variable compared with the average, or midpoint, of the starting and final values - %change in X = change in X/average value of X *100 - Ave. value of X = starting value of X + final value of X / 2 - changes in price aren’t the only thing affecting changes in the quantity demanded: other

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econ ch. 5 - THE PRICE ELASTICITY OF DEMAND the price...

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