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Price elasticity of demand tells us how responsive consumers are to price changes by looking at the percentage change in price and the resulting percentage change in the quantity demanded. Before doing any calculations, it is important to understand the following scenarios:

• If the percentage change in quantity demanded is less than the percentage change in price, then the demand is inelastic.
• If the percentage change in quantity demanded is greater than the percentage change in price, then the demand is elastic.
• If the percentage change in quantity demanded is equal to the percentage change in price, then the demand is unit elastic.
• If the quantity demanded does not change at all when the price changes, then the demand is perfectly inelastic.
• If a small change in price causes the quantity demanded to fall to zero, then the demand is perfectly elastic.

Before doing the calculation in this problem we can determine that the demand is inelastic because the 3% decrease in quantity demanded is less than the 33% increase in price. To calculate a value for the price elasticity of demand we take the percentage change in quantity demanded (-3% in this problem) and divide it by the percentage change in price (33%), giving us a value of -.09. We must then take the absolute value (make the negative number a positive number). That gives us a price elasticity of demand value of .09. If the price elasticity of demand is less than 1 (as it is in this case) we can confirm that the demand is inelastic.

• If the price elasticity had been greater than 1, then the demand would be elastic.
• If the price elasticity of demand had been equal to 1, then the demand would be unit elastic.