Hey there! Sign in to join this conversationNew here? Join for free
x Turn on thread page Beta

Price elasticity of Demand question watch

Announcements
    • Thread Starter
    Offline

    0
    ReputationRep:
    Hey!

    Anyway, I’m still a little confused with why price elasticity of demand varies at every level in a straight line demand curve. “It is wrong to say that price elasticity is constant”. BUT WHY? Mathematically, PED is %change in q/ % change in P, which means it is replica of dy/dx, which calculates the gradient. But the gradient does not change when it is in a straight line.

    I just find it a little weird. I know its related to the relationship between price elasticity and marginal revenue graph... but still.
    Offline

    2
    ReputationRep:
    (Original post by Padapop)
    Hey!

    Anyway, I’m still a little confused with why price elasticity of demand varies at every level in a straight line demand curve. “It is wrong to say that price elasticity is constant”. BUT WHY? Mathematically, PED is %change in q/ % change in P, which means it is replica of dy/dx, which calculates the gradient. But the gradient does not change when it is in a straight line.

    I just find it a little weird. I know its related to the relationship between price elasticity and marginal revenue graph... but still.
    Not quite, I'm pretty sure everyone studying economics has come across the same thought though =D

    Right, so starting from your (correct) statement that PeD = % change in Q / % change in P :

     PeD = \frac{\% \Delta Q}{\% \Delta P}

     PeD = \frac{ \frac{ \Delta Q}{Q} }{ \frac{ \Delta P}{P} }

    Thus:

     PeD = \frac{P}{Q} \frac{ \Delta Q}{ \Delta P}

    Now, while it is true that [delta Q/delta P] is constant, it's the first fraction which changes across the demand curve - P and Q vary. The mistake in your logic is that dy/dx is not a percentage change.

    Hope this helps.
 
 
 
Reply
Submit reply
Turn on thread page Beta
Updated: July 26, 2009
Poll
Do I go to The Streets tomorrow night?

The Student Room, Get Revising and Marked by Teachers are trading names of The Student Room Group Ltd.

Register Number: 04666380 (England and Wales), VAT No. 806 8067 22 Registered Office: International House, Queens Road, Brighton, BN1 3XE

Write a reply...
Reply
Hide
Reputation gems: You get these gems as you gain rep from other members for making good contributions and giving helpful advice.