Economics 1021A/B Chapter Notes - Chapter 4: Negative Number, Demand Curve, Inferior Good

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Depends on the responsiveness of the quantity demanded compared to a change in price. By using these we calculate the elasticity at the point on the demand curve midway between the original point an a new point: e. g. Original price is 20. 50 and new price is 19. 50, therefore, average price is 20. 00. 1. 00 price decrease so (/) x 100 = 5% Original quantity demanded is 9 pizzas and the new is 11 pizzas, therefore, average quantity demanded is 10. 2 pizza increase so (2/10) x 100 = 20% Price elasticity of demand = 20%/5% = 4: when the price of a good rises, the quantity demanded decreases. Because of a positive change in price brings a negative change in the quantity demanded, the price elasticity of demand is a negative number. Perfectly inelastic demand: demand with a price elasticity of zero; the quantity demanded remains constant when the price changes.