ECON101 Chapter Notes - Chapter 4: Normal Good, Opportunity Cost, Inferior Good
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ECON101 Full Course Notes
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Answer depends on the responsiveness of the quantity demanded to a change in price. Price elasticity of demand: a units-free measure of the responsiveness of the quantity demanded of a good to a change in its price when all other influences on buying plans remain the same. Price elasticity of demand = percentage change in quantity demanded. To calculate the price elasticity of demand, we express the changes in price and quantity demanded as percentages of the average price and average quantity. The original price is ,50 and the new price is . 50, so the average price is . price decrease is 5 percent of the average price. The original quantity demanded is 9 pizzas and the new quantity demanded is 11 pizzas, so the average quantity demanded is 10 pizzas. The 2 pizza increase in the quantity demanded is 20 percent of the average quantity. Average quantities give the most precise measurement of elasticity.