as shown in Table 4-3. Notice that elasticity is unit free—even though
prices are measured in dollars and quantity of cheese is measured in
kilograms, the elasticity of demand has no units.
We leave it to you to use this formula to confirm the price elasticities for
T-shirts and coffee machines shown in Table 4-3. [ 7 ]
Calculating price elasticity may seem complicated given the example we
have just worked through, so to reinforce the main point here, let’s keep
it simple. If a 10 percent increase in price leads to a 6 percent decrease in
quantity demanded then price elasticity equals If a 10
percent increase in price leads to a 12 percent decrease in quantity
demanded then price elasticity equals Now let’s look
more closely at what these numbers actually mean.
Interpreting Numerical Elasticities
Because demand curves have negative slopes, an increase in price is
associated with a decrease in quantity demanded, and vice versa. Because
the percentage changes in price and quantity have opposite signs,
demand elasticity is actually a negative number. However, economists
usually focus on the absolute value of the changes (and thus ignore the
sign) and so treat elasticity as a positive number, as we have done in the
illustrative calculations in Table 4-3. Thus, the more responsive the
quantity demanded to a change in price, the greater the elasticity and the
larger is
6 %/ 10 %=0.6.12 %/ 10 %=1.2.η.