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Questions
The measure of price elasticity of demand of a normal good carries minus sign while price elasticity of supply carries plus sign. Explain why?
Explain the significance of 'minus sign' attached to the measure of price elasticity of demand in case of a normal good, as compared to the 'plus sign' attached to the measure of price elasticity of supply.
Why is minus sign attached to the measure of price elasticity of demand of a normal good in comparison to the plus sign attached to the measure of price elasticity of supply? Explain.
Solution
The measurement of price elasticity of demand for normal goods has a (–) sign because the
demand and price of the good are inversely related. It is assumed that other things remain
constant if an increase in the price of a good causes a decrease in the quantity demand for
a good.
The measurement of price elasticity of supply for normal goods has a (+) sign because the
supply and price of the good are positively related. It is assumed that other things remain
constant if an increase in the price of a good causes an increase in the quantity of supply
of goods.
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