Multiple Choice
Refer to the graph above. Between prices p_1 and p_2, which demand curve is relatively most elastic?
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4. Elasticity
Price Elasticity of Demand on a Graph
Multiple Choice
Which of the following statements about the price elasticity of demand on a demand curve is false?
A
At lower prices and higher quantities, demand tends to be more inelastic.
B
The midpoint of a linear demand curve has unitary elasticity.
C
The price elasticity of demand is constant along a linear demand curve.
D
At higher prices and lower quantities, demand tends to be more elastic.
Verified step by step guidance1
Recall the definition of price elasticity of demand (PED), which measures the responsiveness of quantity demanded to a change in price. It is calculated as \(PED = \frac{\% \text{ change in quantity demanded}}{\% \text{ change in price}}\).
Understand that for a linear demand curve, the slope is constant, but the elasticity varies along the curve because elasticity depends on both price and quantity, not just the slope.
Analyze the elasticity at different points on the demand curve: at higher prices and lower quantities, demand tends to be more elastic because consumers are more sensitive to price changes; at lower prices and higher quantities, demand tends to be more inelastic because consumers are less sensitive to price changes.
Recognize that the midpoint of a linear demand curve is where the price elasticity of demand is exactly unitary (elasticity equals 1), meaning the percentage change in quantity demanded equals the percentage change in price.
Conclude that the false statement is the one claiming that the price elasticity of demand is constant along a linear demand curve, since elasticity changes at different points even though the slope remains constant.
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