Why is elasticity not defined simply as the slope of the graph?

Question

It makes more intuitive sense to me: as I increase the quantity, this is how much the price changes. Why is a much more complex formula used that takes into consideration the current quantity and price at a given point on the curve?

Answer 1

Constider two demand curves p= 20- Q and p= 20- 1/2 Q

The First curve is twice as steep as the second.

For person 1 when price is 11 q = 9 and when price = 9 q = 11. I n both cases this person spends $99 on the good. The reduction in price has the impact of lowering the amoount spent. The increase in quan tity has the impact of increasing the amount spent. the midpoint elasticity is = 1 indicating the two effects exactly offset each other.

Now look at the second person. when price = 11 q= 18 and when price = 9 q = 22. Total spending = $198 in both cases. The impact of a reduction in price is offset by the increase in the quantity consumed leaving total spending unchanged..

We see that the absolute sensitivities are different, the relative sensitivities are the same.

If you have further questions please reach out.

Best,

Lenny