ch4 - Chapter 4 Elasticity Price Elasticity of Demand When...

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1 Chapter 4 Elasticity Price Elasticity of Demand When supply increases, the equilibrium price falls and the equilibrium quantity increases. Sometimes the price change is large and the quantity change is small or sometimes the price change is small and the quantity change is large. The size of the change in equilibrium quantity and equilibrium price when supply changes depends on the responsiveness of the quantity demanded to a change in price. The price elasticity of demand is a units-free measure of the responsiveness of the quantity demanded of a good to a change in its price when all other influences on buyers’ plans remain the same. Price elasticity of demand is equal to the percentage change in the quantity demanded divided by the percentage change in price. Study pp. 85-86 in your textbook. Notice that to calculate the price elasticity of demand, we express the changes in price and quantity demanded as percentages of the average price and the average quantity. When the price of a good rises, the quantity demanded decreases along the demand curve. So the price elasticity of demand is a negative number. It is the magnitude of the price elasticity of demand that tells us how responsive demand is. To compare elasticities, we use the magnitude of the price elasticity of demand and ignore the minus sign. If the quantity demanded remains constant when the price changes, then the price
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ch4 - Chapter 4 Elasticity Price Elasticity of Demand When...

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