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changes, … the price elasticity of demand is infinite and the good has a perfectly elastic demand. Figure (c) illustrates the case of perfectly elastic demand— a horizontal demand curve. Price Elasticity of Demand 169。 2020 Pearson AddisonWesley Inelastic and Elastic Demand Demand can be inelastic, unit elastic, or elastic, and can range from zero to infinity. If the quantity demanded doesn’t change when the price changes, the price elasticity of demand is zero and the good as a perfectly inelastic demand. Price Elasticity of Demand 169。 2020 Pearson AddisonWesley The percentage change in quantity demanded, %DQ, is calculated as DQ/Qave x 100, which is (2/10) x 100 = 20%. The percentage change in price, %DP, is calculated as DP/Pave x 100, which is ($1/$20) x 100 = 5%. Price Elasticity of Demand 169。 2020 Pearson AddisonWesley To calculate the price elasticity of demand: We express the change in price as a percentage of the average price— the average of the initial and new price, and we express the change in the quantity demanded as a percentage of the average quantity demanded— the average of the initial and new quantity. Price Elasticity of Demand 169。 2020 Pearson AddisonWesley In Figure (a), an increase in supply brings ? A large fall in price ? A small increase in the quantity demanded Price Elasticity of Demand 169。 2020 Pearson AddisonWesley 169。 2020 Pearson AddisonWesley Calculating Price Elasticity of Demand The price elasticity of demand is calculated by using the formula: Percentage change in quantity demanded Percentage change in price Price Elasticity of Demand 169。 2020 Pearson AddisonWesley The average price is $20 and the average quantity demanded is 10 pizzas an hour. Price Elasticity of Demand 169。 2020 Pearson AddisonWesley A UnitsFree Measure Elasticity is a ratio of percentages, so a change the units of measurement of price or quantity leaves the elasticity value the same. Minus Sign and Elasticity The formula yields a negative value, because price and quantity move in opposite directions. But it is the magnitude, or absolute value, that reveals how responsive the quantity change has been to a price change. Price Elasticity of Demand 169。 2020 Pearson AddisonWesley If the percentage change in the quantity demanded is smaller than the percentage change in price, ? the price elasticity of demand is less than 1 and the good has inelastic demand. If the percentage change in the quantity demanded is greater than the percentage change in price, ?the price elasticity of demand is greater than 1 and the good has elastic demand. Price Elasticity of Demand 169。 2020 Pearson AddisonWesley For example, if the price falls from $25 to $15, the quantity demanded increases from 0 to 20 pizzas an hour. T