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elasticity of demand


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The ratio between proportional change in quantity demanded and proportional change in price. Counter to the general definition of elasticity, it is common to insert a minus sign in the definition, so where q is quantity and p is price, elasticity of demand is given byThis is to make the elasticity of demand positive, to avoid confusion when discussing larger or smaller elasticities. If demand is elastic, εd > 1; the proportional rise in quantity is more than a proportional cut in price, so total spent rises as price falls. This is contrasted with inelastic demand, where εd < 1, so total spent falls as price falls. See also cross-price elasticity of demand; income elasticity of demand.

Subjects: Economics.


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