Question

Price elasticity of demand of good X is −2 and of good Y is −3. Which of the two goods has more price elasticity and why?

Answer 1

1. Mathematically, −2 > −3.
2. But in the context of price elasticity of demand, the minus sign indicates only an inverse relation between price and demand. It does not affect the value of elasticity. Hence, −3 > −2.
   The value of Ed = −3 implies
   that change in demand is 3 times
   the change in price, while
   E_d = −2 implies
   that change in demand is 2 times
   the change in price.
3. Therefore, demand of good Y is more elastic because one percent change in price results in a higher percentage change in demand.