The quantity demanded generally decreases when the price increases, so this ratio is usually expected to be negative. For example, if a 10% increase in the price of good A results in a 6% fall in the quantity demanded of that good, its own price elasticity is -0.6. By contrast, if a 10% fall in the price of good B leads to a 12% increase in the quantity demanded of good B, its own price elasticity is -1.2.
Goods with elasticities less than one in absolute value are commonly referred to as having inelastic or price insensitive demand. In other words, the proportional change in quantity demanded will be less than the proportional change in price. In this situation, increasing the price will increase the revenue received by the producer of the good, since the revenue lost by the decrease in quantity is less than the revenue gained from the higher price.
Goods with elasticities greater than one in absolute value are referred to as having elastic or price sensitive demand. In other words, the proportional change in quantity demanded will be greater than the proportional change in price. A price increase will result in a revenue decrease to the producer since the revenue lost from the resulting decrease in quantity sold is more than the revenue gained from the price increase.
The quantity demanded generally decreases when the price increases, so this ratio is usually expected to be negative. For example, if a 10% increase in the price of good A results in a 6% fall in the quantity demanded of that good, its own price elasticity is -0.6. By contrast, if a 10% fall in the price of good B leads to a 12% increase in the quantity demanded of good B, its own price elasticity is -1.2.Goods with elasticities less than one in absolute value are commonly referred to as having inelastic or price insensitive demand. In other words, the proportional change in quantity demanded will be less than the proportional change in price. In this situation, increasing the price will increase the revenue received by the producer of the good, since the revenue lost by the decrease in quantity is less than the revenue gained from the higher price.Goods with elasticities greater than one in absolute value are referred to as having elastic or price sensitive demand. In other words, the proportional change in quantity demanded will be greater than the proportional change in price. A price increase will result in a revenue decrease to the producer since the revenue lost from the resulting decrease in quantity sold is more than the revenue gained from the price increase.
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