The price elasticity of demand depends on the units used to measure price and quantity.

• A. Price units only
• B. Both price and quantity units
• C. Quantity units only
• D. Neither price nor quantity units

Answer: (D)

The main idea is that price elasticity of demand is a unit-free measure. It is defined as the percent change in quantity demanded divided by the percent change in price. Because both changes are expressed as percentages, they are dimensionless, so the units of price (like dollars or euros) and the units of quantity (like units or dozens) cancel out.

For example, if price goes from $10 to $12 (a 20% increase) and quantity goes from 100 units to 80 units (a -20% change), the elasticity is -20% divided by 20% equals -1. If you instead measure price in euros or quantity in dozens, the percentage changes remain the same, so the elasticity value stays the same.

So the elasticity does not depend on the units used to measure price or quantity.