98
PART TWO
SUPPLY AND DEMAND I: HOW MARKETS WORK
The numerator is the percentage change in quantity computed using the midpoint
method, and the denominator is the percentage change in price computed using
the midpoint method. If you ever need to calculate elasticities, you should use this
formula.
Throughout this book, however, we only rarely need to perform such calcula
tions. For our purposes, what elasticity represents—the responsiveness of quantity
demanded to price—is more important than how it is calculated.
THE VARIETY OF DEMAND CURVES
Economists classify demand curves according to their elasticity. Demand is
elastic
when the elasticity is greater than 1, so that quantity moves proportionately more
than the price. Demand is
inelastic
when the elasticity is less than 1, so that quan
tity moves proportionately less than the price. If the elasticity is exactly 1, so that
quantity moves the same amount proportionately as price, demand is said to have
unit elasticity.
Because the price elasticity of demand measures how much quantity de
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 Spring '10
 abijian
 Economics, Supply And Demand, O W M A R K E T S W O R

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