AP_Krugman_Textbook

and

(46-2) % change in price = × 100

In Figure 46.1, we see that when the price rises from $20 to $21, the quantity demanded
falls from 10 million to 9.9 million vaccinations, yielding a change in the quantity de-
manded of 0.1 million vaccinations. So the percent change in the quantity demanded is

% change in quantity demanded =× 100 = −1%

The initial price is $20 and the change in the price is $1, so the percent change in the price is

% change in price =× 100 = 5%

To calculate the price elasticity of demand, we find the ratio of the percent change in
the quantity demanded to the percent change in the price:

(46-3) Price elasticity of demand =

In Figure 46.1, the price elasticity of demand is therefore

Price elasticity of demand == 0.2

Thelaw of demandsays that demand curves slope downward, so price and quantity de-
manded always move in opposite directions. In other words, a positive percent change in
price (a rise in price) leads to a negative percent change in the quantity demanded; a nega-
tive percent change in price (a fall in price) leads to a positive percent change in the quan-
tity demanded. This means that the price elasticity of demand is, in strictly mathematical
terms, a negative number. However, it is inconvenient to repeatedly write a minus sign. So

1%

5%

Change in price

Initial price

$1

$20

−0.1 million vaccinations

10 million vaccinations

% change in quantity demanded

% change in price

module 46 Income Effects, Substitution Effects, and Elasticity 461

Section 9 Behind the Demand Curve: Consumer Choice

figure 46.1

The Demand for Vaccinations

At a price of $20 per vaccination, the quantity

of vaccinations demanded is 10 million per

year (point A). When price rises to $21 per vac-

cination, the quantity demanded falls to 9.9

million vaccinations per year (point B).

D

10.09.9

$21

20

Price of

vaccination

A

0 Quantity of vaccinations

(millions)

B