Is the Elasticity the Slope?
At this stage, your mind is brimming with new concepts, challenges, and
ideas. You have examined numerous diagrams, and it is quite common to
mistake elasticity at a specific point for the slope. This reading will
help you clarify the distinction.
It is a common mistake to confuse the slope of either the supply or demand curve with its elasticity. The slope is the rate of change in units along the curve or the rise/run (change in y over the change in x). For example, in Figure 5.2, at each point shown on the demand curve, the price drops by $10, and the number of units demanded increases by 200 compared to the point to its left. The slope is –10/200 along the entire demand curve and does not change. The price elasticity, however, changes along the curve. The elasticity between points A and B was 0.45. It increased to 1.47 between points G and H. Elasticity is the percentage change, which is a different calculation from the slope and has a different meaning.
When we are at the upper end of a demand curve, where the price is high and the quantity demanded is low, a small change in the quantity demanded, even in, say, one unit, is pretty big in percentage terms. A change in the price of, say, a dollar is going to be much less important in percentage terms than it would have been at the bottom of the demand curve. Likewise, at the bottom of the demand curve, that one unit change when the quantity demanded is high will be small as a percentage.
Thus, at one end of the demand curve, where we have a large percentage change in quantity demanded over a small percentage change in price, the elasticity value would be high, or demand would be relatively elastic. Even with the same change in the price and the same change in the quantity demanded, at the other end of the demand curve, the quantity is much higher, and the price is much lower, so the percentage change in quantity demanded is smaller. The percentage change in price is much higher. That means that at the bottom of the curve, we would have a small numerator over a large denominator so that the elasticity measure would be much lower or inelastic.
As we move along the demand curve, the values for quantity and price go up or down, depending on which way we are moving, so the percentages for, say, a $1 difference in price or a one-unit difference in quantity will change as well, which means the ratios of those percentages and hence the elasticity will change.
Source: OpenStax, https://openstax.org/books/principles-microeconomics-3e/pages/5-1-price-elasticity-of-demand-and-price-elasticity-of-supply
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