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However, it is usual to ignore the minus sign
, and just describe the absolute value of 
the coefficient. Inelastic demand has a coefficient of less than 1, while elastic demand is greater than 1. 
This can be expressed as: 
100
100
Q
Δ
Q
P
Δ
P


where 

is the symbol for 'change in' 
Q 
is the quantity demanded of the good 
P 
is the price of the good 
If we are measuring the responsiveness of demand to a large change in price, we can measure elasticity 
between two points on the demand curve, and the resulting measure is called the 
arc elasticity of 
demand
. We calculate the arc elasticity of demand from the percentage change in quantity relative to 
average
quantity for the relevant range of output and from the percentage price change relative to the 
average
of the corresponding price range.
If we wish to measure the responsiveness of demand at one particular point in the demand curve, we 
can calculate a 
point elasticity of demand
, without averaging price and quantity over a range. In doing 
so, it is convenient to assume that the demand curve is a straight line unless told otherwise. 
4.6 Example: arc elasticity of demand
The price of a good is $1.20 per unit and annual demand is 800,000 units. Market research indicates 
that an increase in price of 10 cents per unit will result in a fall in annual demand of 70,000 units.
What is the price elasticity of demand measuring the responsiveness of demand over this range of price 
increase? 
 EXAM FOCUS POINT 
Elasticity
is of great practical importance in the real world of business (for example, in pricing 
decisions) and you will need to use it later in your studies. Make sure you have a good understanding 
of the concept of elasticity. 
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