Final answer:
This detailed answer provides a step-by-step guide on how to calculate the price elasticity of demand and explains its meaning and implications.
Step-by-step explanation:
Step-by-step guide for calculating the price elasticity of demand:
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- Calculate the percentage change in quantity demanded
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- Calculate the percentage change in price
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- Divide the percentage change in quantity demanded by the percentage change in price
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- Note the result, which is the price elasticity of demand
The price elasticity of demand measures the responsiveness of the quantity demanded of a good to changes in its price. It tells us the percentage change in quantity demanded for a one percent change in price. If the price elasticity of demand is greater than 1, then demand is elastic (responsive to price changes). If less than 1, demand is inelastic (not very responsive to price changes). If exactly equal to 1, demand is unit elastic.