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Chapter 5 - Chapter 5 Price elasticity of demand Measures...

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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 Unit-elastic 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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