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Understanding how sensitive customer demand is to price changes is crucial for businesses. As you saw,...

Understanding how sensitive customer demand is to price changes is crucial for businesses. As you saw, some demand curves are steep, others flat. Knowing the slopes of demand curves really helps in pricing decisions.

But there’s a problem with using the slope of a curve to measure price-sensitivity. Can you guess what it is? (30-100 words)

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Answer #1

Slope of a curve at any point is the ratio of change in the Y-axis value to the change in X-axis value. A flatter demand curve has lower slope, and a steeper demand curve has a higher slope. However, along a single demand curve, slope remains unchanged at all points. Therefore for a given demand curve we cannot compute price-responsiveness by the value of slope alone. This is why, measuring price sensitivity using slope of a demand curve is an incorrect approach.

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