Why Is the Price Elasticity of Demand a Relative Measure

question 94

Multiple Choice

Why is the price elasticity of demand a relative measure? That is,why is elasticity measured in percentage terms rather than in absolute terms?

• A)So the coefficient of elasticity will not be dependent on the physical units of the good.
• B)Because absolute measures do not account for the direction of the change in quantity.
• C)So that the coefficient of elasticity will not be negative.
• D)Because the absolute price or quantity demanded of a product is irrelevant to the elasticity measure.

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Definitions:

Bretton Woods Agreement

The Bretton Woods Agreement was established in 1944 to set up a new international monetary system, creating exchange rate stability and promoting international economic cooperation.

Exchange Rates

The value of one currency expressed in terms of another currency, which determines how much foreign currency can be exchanged for a unit of domestic currency.

Gold Convertibility

The ability to convert a currency directly into gold, a system which provides a measure of security and confidence in a currency's value.

Managed Float

A currency exchange rate policy where a country's central bank intervenes occasionally to change the direction or the pace of change of a currency's value, without specific target levels.