Which statement about unit independence is true?

Which statement about unit independence is true?

• A. Elasticity depends on units.
• B. Slope of demand depends on units.
• C. Elasticity of demand does not depend on units used to measure price or quantity.
• D. Both A and B are true.

Answer: (C)

The main concept is that elasticity is unit independent. Elasticity is defined as the percent change in quantity demanded divided by the percent change in price, a ratio of two percent changes. Because these are percent changes, the units cancel out, so whether price is measured in dollars or euros and quantity in units or dozens, the elasticity value stays the same. For example, a price move from 10 to 11 dollars is a 10% increase, and a quantity move from 100 to 110 units is a 10% increase; the elasticity calculated from these percent changes remains the same regardless of how we express the units. In contrast, the slope of the demand curve, ΔP/ΔQ, depends on how price and quantity are measured, so changing units changes the slope. Therefore, the statement that elasticity of demand does not depend on units used to measure price or quantity is the correct one.

The main concept is that elasticity is unit independent. Elasticity is defined as the percent change in quantity demanded divided by the percent change in price, a ratio of two percent changes. Because these are percent changes, the units cancel out, so whether price is measured in dollars or euros and quantity in units or dozens, the elasticity value stays the same. For example, a price move from 10 to 11 dollars is a 10% increase, and a quantity move from 100 to 110 units is a 10% increase; the elasticity calculated from these percent changes remains the same regardless of how we express the units. In contrast, the slope of the demand curve, ΔP/ΔQ, depends on how price and quantity are measured, so changing units changes the slope. Therefore, the statement that elasticity of demand does not depend on units used to measure price or quantity is the correct one.