Principles of Microeconomics, 7th Edition

Published by South-Western College
ISBN 10: 128516590X
ISBN 13: 978-1-28516-590-5

Chapter 5 - Part II - Elasticity and its Application - Questions for Review: 3

Answer

If the elasticity is greater than 1, the demand of that good is elastic. If the elasticity equals zero, the demand of that good is perfectly inelastic.

Work Step by Step

The price elasticity of demand measures how much the quantity demanded of a good changes in response to a change in the price of that good. This is computed as the percentage change in quantity demanded divided by the percentage change in price. Therefore, if the elasticity is greater than 1, this means that the change in quantity demanded is greater in magnitude than the change in the price of the good. So, the good is elastic. If the elasticity is zero, this means that the change in quantity demanded of the good is zero, regardless of the magnitude of change in price. Therefore, this good will be perfectly inelastic, because the price of the good has no effect on quantity demanded.
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