Table4-1 Price Reductions and Corresponding Increases in
Quantity Demanded for Three Products
curves on different scales, we could have concluded nothing about which
demand curve actually had the greater slope.
Second, because we started from the same price–quantity equilibrium in
both parts of the figure, we did not need to distinguish between
percentage changes and absolute changes. If the initial prices and
quantities are the same in both cases, the larger absolute change is also
the larger percentage change. However, when we want to deal with
different initial price–quantity equilibria, we need to decide whether we
are interested in absolute or percentage changes.
To see why the difference between absolute and percentage change
matters, consider the changes in price and quantity demanded for three
different products: cheese, T-shirts, and coffee machines. The information
is shown in Table 4-1. Should we conclude that the demand for coffee
machines is not as responsive to price changes as the demand for cheese?
After all, price cuts of $2 cause quite a large increase in the quantity of
cheese demanded, but only a small increase in the quantity demanded of
coffee machines. It should be obvious that a $2 price reduction is a large
price cut for a low-priced product and an insignificant price cut for a high-
priced product. In Table 4-1 , each price reduction is $2, but they are
clearly different proportions of the respective prices. It is usually more
revealing to know the percentage change in the prices of the various
products.