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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:
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This note was uploaded on 07/30/2010 for the course ECON 120 taught by Professor Abijian during the Spring '10 term at Mesa CC.
 Spring '10
 abijian
 Economics

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