Concept of Proportionality

Concept of Proportionality

The price elasticity of demand refers to the responsiveness of quantity demanded to a change in price. Elasticity is represented by the mathematical formula where the change in quantity demanded is divided by the change in price.

If the resulting coefficient is less than one, the product is said to be inelastic. Thus, if prices change by a greater proportion than quantity demanded, the product is inelastic. This applies to basic goods and services, necessities such as bread, and habit-forming goods such as cigarettes.

Both magnitudes and numbers stand for quantity, on the other hand; magnitude is continuous ...