Which is true regarding price elasticity of demand?

Question

BlackTom AI · Accepted Answer

Price elasticity of demand (PED) is defined as the percentage change in quantity demanded divided by the percentage change in price: PED = (%ΔQ) / (%ΔP). Because demand curves slope downward, %ΔQ and %ΔP have opposite signs, so the ratio is normally negative. Economists, however, report elasticity using its absolute value to focus on magnitude (responsiveness) rather than sign.

Relevant knowledge points:
- PED formula and its negative sign for a typical downward-sloping demand curve.
- Common convention: report |PED| (absolute value) to classify responsiveness: |PED| > 1 elastic, |PED| < 1 inelastic, |PED| = 1 unitary elastic.
- Practical interpretations ignore the negative sign because direction (negative) is expected.

Step-by-step reasoning with a numeric example:
1. Suppose price falls from $10 to $8 and quantity demanded rises from 100 to 140.
2. Compute percentage changes (using initial values):
   - %ΔP = (8 − 10) / 10 = −2 / 10 = −0.20 = −20%.
   - %ΔQ = (140 − 100) / 100 = 40 / 100 = 0.40 = 40%.
3. Compute PED = (%ΔQ) / (%ΔP) = 0.40 / (−0.20) = −2.0.
4. Take the absolute value for reporting: |PED| = 2.0, which indicates demand is elastic.

Why the correct answer is correct:
- The negative sign is a mechanical consequence of the inverse relationship between price and quantity. Reporting the absolute value makes classification and communication clearer (how responsive consumers are), so PED is usually expressed as an absolute value.

Why other possible statements would be incorrect:
- Saying PED is “always positive” without noting absolute-value convention is misleading—raw PED is negative for normal goods.
- Saying PED depends on units is wrong because percent changes make it unit-free.
- Saying PED is constant along a linear demand curve is false; it varies unless using arc/midpoint conventions.

Conclusion: The correct statement is that price elasticity of demand is usually expressed as an absolute value, which matches the provided answer.

Which is true regarding price elasticity of demand?Single choice

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Which is true regarding price elasticity of demand?

Which is true regarding price elasticity of demand?

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