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And the best way to interpret it is to think about the absolute value of the price elasticity of demand. So, over here, the absolute value of our price elasticity of demand is equal to nine, and then, over here, the absolute value of our price elasticity of demand is equal to 0.25.
Key points. Price elasticity measures the responsiveness of the quantity demanded or supplied of a good to a change in its price. It is computed as the percentage change in quantity demanded—or supplied—divided by the percentage change in price.
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**The formula for elasticity of demand is actually in absolute value, since the negative does not tell us anything about the elasticity. It is assumed that the elasticity will be the same regardless if we measure going up in price or going down in price relative the same prices.
4.1 Calculating Elasticity. Learning Objectives. By the end of this section, you will be able to: Calculate the price elasticity of demand. Calculate the price elasticity of supply. Calculate the income elasticity of demand and the cross-price elasticity of demand. Apply concepts of price elasticity to real-world situations.
Elasticity is a ratio of one percentage change to another percentage change—nothing more—and is read as an absolute value. In this case, a 1% rise in price causes an increase in quantity supplied of 3.5%.
Calculate price elasticity using the midpoint method. Differentiate between slope and elasticity. Figure 1. Just how elastic is it? We have defined price elasticity of demand as the responsiveness of the quantity demanded to a change in the price.
