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Unformatted text preview: example above, when price changes from 2 to 3 units, the quantity demanded changes from 4 to 1 units. Substituting these values we have: Note that the elasticity ratio 3/2 is more than one and has a negative sign. Both these are important features. Numerical values explain the extent or degree of change in demand while the sign of the ratio explains the direction of change. Since the law of demand is based on the inverse relation between price and quantity, the elasticity of demand is always stated with a negative sign....
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- Fall '10
- Price Elasticity