Elasticity

C

chibwack

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If the demand curve for a given product is a straight line, this indicates that:
A)
demand is unit elastic.
B)
demand is more elastic at higher prices.
C)
elasticity is constant along the demand curve.
Your answer: C was incorrect. The correct answer was B) demand is more elastic at higher prices.
Elasticities will be greater (in absolute value) at higher prices.
I don’t understand why I’m wrong. If the demand curve is a straight line, and elasticity can be seen as the slope of the respective curve, and that curve is a straight line, then elasticity should be constant…? Where am I going wrong?
 
I would agree with your answer on this question as well. Where did this question come from? It sounds like the answer they have given was meant for another similar question.
 
The slope of a straight-line demand curve, one with a constant slope, has constantly changing elasticity. It includes all five elasticity alternatives–perfectly elastic, relatively elastic, unit elastic, relatively inelastic, and perfectly inelastic. No two points on a straight-line demand curve have the same elasticity.
The price elasticity of demand is different at each point on a demand curve with constant slope. The reason is that slope and elasticity are different concepts. Slope measures the steepness or flatness of a line in terms of the measurement units for price and quantity. Elasticity measures the relative response of quantity to changes in price.
For more : http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=elasticity+and+d...
 
It can be useful to think of elasticity as the slope of the demand curve, but only when comparing two different demand curves. That is, if the slope of one demand curve is greater (when plotted with P on the vertical axis) than another at the same price/quantity combination, then the steeper demand curve will be be more inelastic. However, this does not hold along a single demand curve.
The mathematical definition of elasticity is (dQ / dP) * (P / Q), where the first term is the derivative of the demand function with respect to price. If the demand curve is linear, the derivative (i.e. the slope) will be constant, but the (P / Q) term will change depending on the price/quantity combination.
 
Ahh ok, thanks kempayne. That helps alot. Guess this is a case of my econ major biting me in the ass (I’ve always said post-secondary over simplifies things…though maybe that was just my school hah)
Capaldij: that was from the qbank
 
chibwack wrote:
Ahh ok, thanks kempayne. That helps alot. Guess this is a case of my econ major biting me in the ass (I’ve always said post-secondary over simplifies things…though maybe that was just my school hah)
Capaldij: that was from the qbank
Click to expand...
I will look out for this one in the Qbank then ;)
And thanks for your input other guys! Cleared this one up for me too
 
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