2.15 : Elasticity and Slope

The slope and elasticity of a demand curve, while related, serve different purposes in economic analysis.

Slope of Demand Curve:

• The slope represents the rate at which the quantity demanded changes in response to a change in price.
• It depends on the units used for measuring price and quantity, complicating comparisons across diverse products and markets. For instance, the slope for a product priced in euros per unit will differ from that of a product priced in yen per unit, even if their price responsiveness is similar.
• A key limitation of slope is its inability to measure price responsiveness consistently across the curve. A product may have a constant slope but exhibit varying degrees of responsiveness to price changes at different price levels.

The Price Elasticity of Demand:

• Price elasticity of demand measures the percentage change in quantity demanded resulting from a one percent change in price, providing a unit-free measure of price responsiveness.
• This characteristic allows for direct comparisons of price sensitivity across different products and markets without the complications introduced by differing units of measurement.
• On a linear demand curve, there is a mathematical relationship between slope and elasticity, indicating that elasticity varies along the curve despite a constant slope.