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Principles of Economics- Mankiw (5th) 92

Principles of Economics- Mankiw (5th) 92 - 96 PA R T T W O...

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96 PART TWO SUPPLY AND DEMAND I: HOW MARKETS WORK percentage change in price. In this example, the percentage change in price is a pos- itive 10 percent (reflecting an increase), and the percentage change in quantity de- manded is a negative 20 percent (reflecting a decrease). For this reason, price elasticities of demand are sometimes reported as negative numbers. In this book we follow the common practice of dropping the minus sign and reporting all price elasticities as positive numbers. (Mathematicians call this the absolute value. ) With this convention, a larger price elasticity implies a greater responsiveness of quan- tity demanded to price. THE MIDPOINT METHOD: A BETTER WAY TO CALCULATE PERCENTAGE CHANGES AND ELASTICITIES If you try calculating the price elasticity of demand between two points on a de- mand curve, you will quickly notice an annoying problem: The elasticity from point A to point B seems different from the elasticity from point B to point A. For example, consider these numbers: Point A:
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