ECON 1050 Chapter 4: Economics-1 (1) (dragged) 1
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Percentages and proportions the ratio of two proportionate changes is the same as the ratio of two percentage changes/ Elasticity is a ratio of percentages, so a change in the units of measurement of price or quantity leaves the elasticity value the same. The formula yields a negative value, because price and quantity move in opposite directions. But it is the magnitude, or absolute value, that reveals how responsive the quantity change has been to a price change. Demand can be inelastic, unit elastic, or elastic, and can range from zero to infinity. If the quantity demanded doesn"t change when the price changes, the price elasticity of demand is zero and the good has a perfectly inelastic demand. The figure below illustrates the case of a good that has a perfectly inelastic demand.