# ECO 365 Week 1 participation Price Elasticity of Demand

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ECO 365 Week 1 participation Price Elasticity of Demand
Class,

Note that there's a common misperception that elasticity has to do with whether the quantity demanded decreases if the price increases, or not. The quantity demanded of virtually every good will decrease if the price increases. We know this from the Law of Demand. The difference between elastic and inelastic demand is a matter of degree. In other words, the issue is the relative sensitivity of quantity demanded to a given percentage change in price. Price elasticity of demand is the responsiveness of quantity demanded to changes in price. It is measured by dividing the percentage change in quantity demanded by the percentage change in the price. See section 5-1b of your textbook.

If the elasticity we measure is greater than 1, which say demand is elastic. This means the percentage change in the quantity demand due to a given percentage change in the price is greater than the percentage change in the price. That occurs when demand is relatively responsive to changes in price. The greater the elasticity measure, the greater the responsiveness of quantity demanded to the change in price. Conversely, demand is relatively unresponsive to changes in price when the elasticity measure is less than 1. Finally, demand is unit elastic when the elasticity measure equal 1. In this case, the percentage change in quantity demanded equals the percentage change in price.

Class, what are some of the factors that determine price elasticity of demand?