Explain why the price elasticity of demand varies along a demand curve

Explain why the price elasticity of demand varies along a demand curve, even if the demand curve is linear.

What will be an ideal response?

ANSWER

As we move down a demand curve, the percentage change in price (quantity) varies. When price is relatively high, a one unit change in price is small in percentage terms. When price is relatively low, a one unit change is much higher as a percent of the price. The same is true for quantity demanded. Given the inverse relationship between price and quantity along a demand curve and the formula for calculating elasticity, as we move down a demand curve, percentage change in price increases and the corresponding percentage change in quantity demanded decreases, causing the ratio of the two to get smaller in absolute terms.