Question

To evaluate the sensitivity of changes in quantity demanded (or purchases) to changes in price, a researcher could evaluate the slope of the market demand curve or the price elasticity of demand. The price elasticity of demand may be favored over the slope because:

1) i. the price elasticity provides a better means for making cross-product comparisons (e.g., between goods X and Y) when the prices of the products differ
2) ii. the price elasticity is not sensitive to the units in which price and quantity demanded are measured
3) iii. the slope of the demand curve can only be used if the demand curve is linear

Answer 1

The price elasticity of demand is preferred over the slope of a demand curve because it aids in cross-product comparisons, is not influenced by measurement units, and can be used with non-linear demand curves.

Step-by-step explanation:

To evaluate how quantity demanded changes in response to changes in price, the slope of the demand curve and the price elasticity of demand are both valuable tools. However, price elasticity of demand is often preferred because:

• It provides a standardized measure making cross-product comparisons more objective, especially when comparing goods with different price ranges.
• It’s a dimensionless measure, meaning it’s not affected by the units of measurement for price or quantity demanded. This property also supports cross-product comparisons.
• The applicability of the slope is limited to linear demand curves, while price elasticity can be used with both linear and non-linear curves.

Price elasticity of demand is calculated by dividing the percentage change in quantity demanded by the percentage change in price.