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What criterion determines whether demand for a product is elastic?
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Recall that the purpose of the price elasticity of demand is to measure the responsiveness of quantity demanded to changes in price.
The key idea to keep in mind is that the closer the value of the price elasticity of demand is to zero the more inelastic it is. If we measure the price elasticity of demand and find that consumers do not change their buyer behavior, the Pe will equal 0 – this means that the price did not matter so demand is perfectly inelastic. The farther the Pe gets from zero the more elastic demand becomes and the more price matters in the decisions of consumers.
A price elasticity of demand coefficient of less-than-one means that the demand for the product is NOT elastic; a price elasticity of demand coefficient of greater-than-one means that the demand for the product IS elastic; an elasticity coefficient of precisely one means that the price elasticity of demand is NEITHER elastic or inelastic – economists call this unitary price demand.
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