ECON101 Chapter Notes - Chapter 4: Demand Curve, Unit
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ECON101 Full Course Notes
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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 its price when all other influences on buying plans remain the same. Price elasticity of demand = % change in quantity demanded / % change in price. When the price of a good rises, the quantity demanded decreases. We ignore the minus sign and use the magnitude of the elasticity. If the quantity demanded remains constant when the price changes, then the price elasticity of demand is zero and the good is said to have a perfectly inelastic demand. If the % change in the quantity demanded = the % change in the price price elasticity = 1 good has a unit elastic demand. If the % change in the quantity demanded < the % change in the price good has an inelastic demand.