Chapter S Elasticity And Its Application I G U R E

than the price. If the elasticity is exactly 1, the quantity moves the same amount proportionately as the price, and demand is said to have unil elasticity.

Because the price elasticity of demand measures how much quantity demanded responds to changcs in the price, it is doscly related to the slope of the demand curve. The following rule of thumb is a useful guide: The flatter the demand curv e that passes through a given point, the greater the price elasticity of demand. The Steeper the demand curve that passes through a given point, the smaller the price elasticity of demand.

Figure 1 on the previous page shows five ease«. In the extreme case of a zero elasticity, shown in panel (a), demand is perfectly Inelastic, and the demand curve is vertical. In this case, regard left of the price, the quantity demanded stays the same. As the elasticity rises, the demand curve gets flatter and flatter, as shown in panels <b),(c), and (dj. At the opposite extreme, shown in panel (e), demand is perfectly clastic. This occurs as the price elasticity of demand approaches infinity and the demand curve becomes horizontal, reflecting the fact »hat very small changes in the price lead to huge changes in the quantity demanded.

Finally, if you have trouble keeping straight the terms elastic and inelastic, here's a memory trick for you: inelastic curves, such as in panel fa) of Figure 1, look like tl>e letter I- This is not a deep insight, but it might help on your next exam.

Was this article helpful?

0 0
Single Parenting

Single Parenting

Finally! You Can Put All Your Worries To Rest! You Can Now Instantly Learn Some Little-Known But Highly Effective Tips For Successful Single Parenting! Understand Your Role As A Single Motherfather, And Learn How To Give Your Child The Love Of Both Parents Single Handedly.

Get My Free Ebook

Post a comment