ECON 1000 Chapter Notes - Chapter 4: Inferior Good, Normal Good, Demand Curve
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The price elasticity of demand is a units-free measure of the responsiveness of the quantity demanded of a good to a change in the price when all other influences on buying plans remain the same. We calculate the price elasticity of demand by using the formula: To calculate price elasticity of demand, we express the change in price as a percentage of the average price and the change in the quantity demanded as a percentage of average quantity. By using the average price and average quantity, we calculate the elasticity at a point on the demand curve midway between the original point and the new point. We use average price and average quantity because it gives the most precise measurement of elasticity ad the midpoint between the original price and the new price. Elasticity is the ratio of two percentage changes and is a proportionate change multiplied by 100.