Why is the sign of price elasticity of demand negative?

The sign of price elasticity of demand is negative due to inverse relationship between price and quantity. In the words of Lipsey, “Because of the negative slope of the demand curve, the price and the quantity will always change in opposite directions. One change will positive and the other is negative, making the measured elasticity of demand negative”. However, the trend is to ignore the negative sign and discuss only the absolute level of price elasticity. In other words we can say, price elasticity of demand is expressed as a number eliminating the negative sign. For example if 20 per cent reduction in the price of coke causes a 30 per cent increase in the quantity of demanded then the ratio called the elasticity of demand is

Ed = (-) 30% / (-20%)
= 1.5

The negative sign is ignored to avoid an ambiguity which might otherwise arise. It can be confusing to say that an elasticity coefficient of 3 is greater than that of 2. This possible confusion can be avoided if we simply say a coefficient of 3 indicates greater elasticity than 2 Hence, the minus sign in the coefficient of price elasticity of demand is generally ignored.

e= Percentage change in Quantity Purchased/Percentage change in Price
Owlgen
Logo
Enable registration in settings - general
Compare items
  • Total (0)
Compare
0