Multiple Choice
Given a downward-sloping linear demand curve, in which price range is the price elasticity of demand greater than 1 (i.e., demand is elastic)?
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4. Elasticity
Price Elasticity of Demand on a Graph
Multiple Choice
Which of the following statements about price elasticity of demand on a graph is correct?
A
Elasticity is constant along a linear demand curve.
B
A demand curve is perfectly inelastic if it is downward sloping.
C
A demand curve is perfectly elastic if it is horizontal.
D
A steeper demand curve always indicates higher elasticity.
Verified step by step guidance1
Recall the definition of price elasticity of demand, which measures the responsiveness of quantity demanded to a change in price. It is calculated as \(\text{Elasticity} = \frac{\% \text{ change in quantity demanded}}{\% \text{ change in price}}\).
Understand that along a linear demand curve, the slope (change in price over change in quantity) is constant, but elasticity varies because elasticity depends on both slope and the ratio of price to quantity at each point. Therefore, elasticity is not constant along a linear demand curve.
Recognize that a perfectly inelastic demand curve is vertical, meaning quantity demanded does not change regardless of price changes. A downward sloping demand curve is not perfectly inelastic; it has some responsiveness.
Know that a perfectly elastic demand curve is horizontal, indicating that consumers will only buy at one price and any deviation leads to zero quantity demanded. This matches the statement that a demand curve is perfectly elastic if it is horizontal.
Note that the steepness of a demand curve alone does not determine elasticity because elasticity also depends on the price and quantity levels. A steeper curve can indicate lower elasticity, but this is not always the case.
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