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a.Absolute changes depend on choice of units.  For example, a $1 change price of a $10,000 car is very different from a change in the price of a $1 can of beer by $1.  The auto’s price is rising by a fraction of one percent while the beer can is rising by 100 percent.

b.Percentages also make it possible to compare elasticities of demand for different products.  

3.Because of the inverse relationship between price and quantity demanded, the actual elasticity of demand will be a negative number.  However, we ignore the minus sign and use absolute value of both percentage changes.

4.If the coefficient of elasticity of demand is a number greater than one, we say demand is elastic; if the coefficient is less than one, we say demand is inelastic.

5.A special case is if the coefficient equals one; this is called unit elasticity  or unitary elasticity.

6.Note: Inelastic demand does not mean that consumers are completely unresponsive.  This extreme situation is called perfectly inelastic demand.

9.Likewise, elastic demand does not mean consumers are completely responsive to a price change. This extreme situation is perfectly elastic demand.

D.Graphical analysis:

1.Graphically a perfectly elastic demand is a horizontal demand schedule and a perfectly inelastic demand schedule is a vertical demand schedule.

2.A straight line demand schedule (with a constant a constant slope) has higher price elasticity at high prices and lower price elasticity at low prices.

3.The slope of a line is not the measure of its elasticity:   Slope is a comparison of absolute changes, while elasticity is a comparison of percentage changes.

3.It is impossible to judge the elasticity of a single demand curve by its flatness or steepness, since demand elasticity can measure both elastic and inelastic at different points on the same demand curve.

E.The Total-revenue Test is the easiest way to judge whether demand is elastic or inelastic.  This test can be used in place of the elasticity formula, unless there is a need to determine the elasticity coefficient.

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