ECON 1000 Chapter Notes - Chapter 4: Inferior Good, Normal Good, Demand Curve
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The price elasticity of demand: a units free measure of the responsiveness of the quantity demanded of a good to change in its price when all other influences on buying plans remain the same. Price elasticity of demand = percentage change in quantity demanded. Because a positive change in price brings a negative change in the quantity demanded, the price of elasticity of demand is a negative number. However, it is the magnitude or absolute value of the price elasticity of demand that tells us how responsive the quantity demanded is. So, to compare the price elastics of demand, we use the magnitude of the elasticity and ignore the minus sign. Perfectly inelastic demand: when the quantity demanded remains constant when the price changes, then the price elasticity of demand is zero. This is because, insulin is of such importance to diabetics that if the price rises or falls, they do not change the quantity they buy.