Why is the price elasticity of demand a relative measure? That is,why is elasticity measured in percentage terms rather than in absolute terms?
A)So the coefficient of elasticity will not be dependent on the physical units of the good.
B)Because absolute measures do not account for the direction of the change in quantity.
C)So that the coefficient of elasticity will not be negative.
D)Because the absolute price or quantity demanded of a product is irrelevant to the elasticity measure.

Question

Quizplus · Accepted Answer

The price elasticity of demand is a relative measure because it is calculated as the percentage change in quantity demanded divided by the percentage change in price. This is done to avoid the dependency on the physical units of the good, which could vary among different products. Absolute measures do not provide useful information about how the quantity demanded changes in relation to price, and they do not account for the direction of the change in quantity. Moreover, the sign of the coefficient of elasticity is used to determine the direction of the change in quantity, so it can be positive or negative, depending on whether the good is a normal or inferior good, respectively.

Why Is the Price Elasticity of Demand a Relative Measure