Question 1

Does a steep demand curve always mean demand is inelastic?

Accepted Answer

Not necessarily. While a steep demand curve *looks* inelastic, elasticity actually changes along a straight-line demand curve. At high prices (top of the curve), demand is elastic, while at low prices (bottom of the curve), it becomes inelastic. The gradient is constant, but the ratio of price to quantity changes. Therefore, you must calculate the PED value at a specific point or over a specific price change rather than just judging by the steepness of the entire curve.

Question 2

Is PED always negative? Why do we often ignore the minus sign?

Accepted Answer

Yes, for a standard good, PED is always negative because price and quantity demanded have an inverse relationship (as price goes up, demand goes down). However, for interpretation, we are interested in the *magnitude* of the response. We use the absolute value (ignoring the minus sign) to classify demand as elastic (>1) or inelastic (<1). A value of -2.5 is more elastic than -0.5. The negative sign is assumed, but the focus is on the number itself to guide pricing strategy.

Question 3

Can a business just calculate its elasticity once and use it forever?

Accepted Answer

No, elasticity values are not static. They are a snapshot at a particular point in time and at a particular price level. Factors that determine elasticity, such as consumer tastes, income levels, the number of competitors, and technology, are constantly changing. A successful business must periodically re-estimate the elasticity of its products to ensure its pricing and marketing strategies remain effective and responsive to current market conditions.

Elasticity

What you need to know

Elasticity