Chapter 5 – 10/22/07
Price elasticity of demand
– Measures how responsive quantity demanded is to a price change; the
percentage change in quantity demanded divided by the percentage change in price
Price elasticity = Percentage change in quantity demanded / percentage change in price
Price elasticity formula
– Percentage change in quantity demanded divided by the percentage change in
price; the average quantity and the average price are used as bases for computing percentage changes in
quantity and in price
E
D
=
Inelastic Demand
– A change in price has relatively little effect on quantity demanded; the percentage
change in quantity demanded is less than the percentage change in price; the resulting price elasticity has
an absolute value of less than 1.0
Unitelastic demand
– The percentage change in quantity demanded equals the percentage change in
price; the resulting price elasticity has an absolute value of 1.0
Elastic Demand
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 Fall '07
 Kelly
 Microeconomics, Price Elasticity, Supply And Demand, percentage change

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