Comparing Measures of Price Responsiveness
An economist is analyzing the consumer demand for gasoline in two different countries. In Country A, gasoline is sold by the gallon and priced in dollars. In Country B, it is sold by the liter and priced in yen. The economist wants to determine in which country consumers are more responsive to a change in the price of gasoline. Explain why using the slope of each country's demand curve would be a problematic way to make this comparison, and why using price elasticity of demand would be a more appropriate method.
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A market analyst for an international coffee company first measures the demand for their product with price in US dollars ($) and quantity in pounds (lbs). At the current market price, they calculate both the slope of the demand curve and the price elasticity of demand. The company then decides to standardize its reporting for European markets and re-measures the same demand relationship with price in Euros (€) and quantity in kilograms (kg). How will the newly calculated values for slope and elasticity at the exact same market equilibrium point compare to the original values?
Comparing Price Sensitivity Across Currencies
Comparing Measures of Price Responsiveness
An economist observes that the slope of the demand curve for gasoline is -0.5 (gallons per dollar) while the slope of the demand curve for coffee is -2 (cups per dollar). Based solely on this information, the economist can conclude that the quantity demanded of coffee is more responsive to a change in its price than the quantity demanded of gasoline.
Evaluating Measures of Price Responsiveness
Consider a straight-line, downward-sloping demand curve. As one moves from a high-price, low-quantity point down along the curve to a low-price, high-quantity point, what happens to the slope of the curve and the price elasticity of demand?
Match each characteristic below to the appropriate measure of price responsiveness.
An international beverage company analyzes its sales data. In the United States, the slope of the demand curve for its soda is -500 cans per dollar. In Japan, the slope is -20,000 cans per yen. A manager concludes that demand is far more responsive to price changes in Japan than in the US. Why is this conclusion likely invalid?
Because price elasticity of demand is calculated using percentage changes, its value is independent of the units used to measure price and quantity, making it a ____ measure.
Evaluating Regional Sales Data