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Question
Explain the term elasticity of demand.
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Solution
Alfred Marshall was the first economist to develop the concept of price elasticity of demand as the ratio of a relative change in quantity demanded to a relative change in price. A relative measure is needed so that changes in different measures can be compared. These relative changes in demand and price are measured by percentage change. The percentage changes are independent of units. The elasticity of demand is the ratio between the percentage change in demand and percentage change in price.
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