Practice question · Multiple choice
Elasticity is defined as a ratio of percentage changes rather than a plain derivative. What does that buy?
Hints
- Ask what happens to dQ/dP if you switch from litres to gallons.
- Percentages divide out something. What?
Show the answer
D. Unit-free comparability across goods and countries
Why
Switching units rescales the derivative and leaves the elasticity untouched, so it travels between markets and datasets. Option 4 is a common error, elasticity varies along a linear demand curve, running from infinite at the intercept to zero at the axis, which is why the tax-incidence result depends on where you are.
Practise Economic Applications
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