Multiple Choice
When analyzing a graph with different demand curves, which curve represents perfectly elastic demand?
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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 is correct?
A
If the demand curve is perfectly horizontal, the price elasticity of demand is infinite.
B
A downward-sloping straight-line demand curve has the same elasticity at every point.
C
A vertical demand curve indicates that demand is unit elastic.
D
If the price elasticity of demand is less than 1, demand is considered elastic.
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 the shape of the demand curve and its relation to elasticity: a perfectly horizontal demand curve means consumers will buy any quantity at a given price but none if the price changes, implying infinite elasticity.
Analyze the statement about a downward-sloping straight-line demand curve: elasticity varies along the curve because the percentage changes in price and quantity differ at different points, so elasticity is not constant.
Consider a vertical demand curve, which means quantity demanded does not change regardless of price changes, indicating perfectly inelastic demand (elasticity equals zero), not unit elastic.
Review the definition of elastic and inelastic demand: if elasticity is less than 1, demand is inelastic (not elastic), meaning quantity demanded changes proportionally less than price changes.
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