Which statement best explains why elasticity varies along a straight-line demand curve?

Which statement best explains why elasticity varies along a straight-line demand curve?

• A. Because the slope is positive.
• B. Because elasticity depends on the ratio of price to quantity, which changes along the curve.
• C. Because the intercept is fixed.
• D. Because the slope changes along the curve.

Answer: (B)

Elasticity is a relative measure of how much quantity responds to a price change, and it depends on the actual price and quantity at the point on the curve. For a straight-line downward demand curve, the slope (the rate of change in quantity per unit price) is constant, but elasticity uses the ratio P/Q, since E = (ΔQ/ΔP) × (P/Q). As you move along the line, price and quantity change, so the ratio P/Q changes. When price is high and quantity is low, P/Q is large, making elasticity large in magnitude (demand appears more elastic). When price is low and quantity is high, P/Q is small, and elasticity is smaller in magnitude (demand appears more inelastic). So elasticity varies along a straight-line demand curve because it depends on the changing price-to-quantity ratio, even though the slope is constant.

Elasticity is a relative measure of how much quantity responds to a price change, and it depends on the actual price and quantity at the point on the curve. For a straight-line downward demand curve, the slope (the rate of change in quantity per unit price) is constant, but elasticity uses the ratio P/Q, since E = (ΔQ/ΔP) × (P/Q). As you move along the line, price and quantity change, so the ratio P/Q changes. When price is high and quantity is low, P/Q is large, making elasticity large in magnitude (demand appears more elastic). When price is low and quantity is high, P/Q is small, and elasticity is smaller in magnitude (demand appears more inelastic). So elasticity varies along a straight-line demand curve because it depends on the changing price-to-quantity ratio, even though the slope is constant.