EconNotes6 - THE PRICE ELASTICITY OF DEMAND Price...

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THE PRICE ELASTICITY OF DEMAND 22/03/2008 17:34:00 Price Elasticity of Demand     ELASTICITY o A measure of how much one economic variable responds to changes  in another economic variable. PRICE ELASTICITY OF DEMAND o The responsiveness of the quantity demanded to a change in price. o Pr ice elasticity of demand = Percentage change in quantity demanded Percentage change in price o ELASTIC DEMAND Demand is elastic when the percentage change in quantity  demanded is greater than the percentage change in price, so  the price elasticity is greater than 1 in absolute value. o INELASTIC DEMAND Demand is inelastic when the percentage change in quantity  demanded is less than the percentage change in price, so the  price elasticity is less than 1 in absolute value. o UNIT-ELASTIC DEMAND Demand is unit-elastic when the percentage change in quantity  demanded is equal to the percentage change in price, so the  price elasticity is equal to 1 in absolute value. o Pr ice elasticity of demand = ( Q 2 - Q 1 ) Q 1 + Q 2 2 ( P 2 - P 1 ) P 1 + P 2 2 The flatter the demand curve, the more elastic.   The steeper the demand curve, the less elastic. o PERFECTLY INELASTIC DEMAND Demand is perfectly inelastic when the quantity demanded is  completely unresponsive to the price, and the price elasticity of 
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This note was uploaded on 03/22/2008 for the course ECON 002 taught by Professor Mcleod,markpehlivan,ayseozg during the Spring '08 term at Penn State.

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EconNotes6 - THE PRICE ELASTICITY OF DEMAND Price...

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