Multiple Choice
What is the elasticity of demand when the price of the good changes from \$3 to \$5?
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4. Elasticity
Total Revenue Along a Linear Demand Curve
Multiple Choice
At what price is the elasticity of demand for the product equal to one?
A
\$2
B
\$3
C
\$4
D
\$5
Verified step by step guidance1
Identify the demand curve from the graph. The demand curve is a straight line, which can be represented by the equation P = a - bQ, where P is the price, Q is the quantity, a is the intercept on the price axis, and b is the slope of the demand curve.
Determine the intercepts of the demand curve. From the graph, the price intercept (where Q = 0) is P = 6, and the quantity intercept (where P = 0) is Q = 150.
Calculate the slope (b) of the demand curve. The slope is given by the change in price divided by the change in quantity, which is (6 - 0) / (0 - 150) = -6/150 = -1/25.
Write the equation of the demand curve using the intercept and slope: P = 6 - (1/25)Q.
To find the price at which the elasticity of demand is equal to one, use the formula for elasticity: E = (dQ/dP) * (P/Q). For a linear demand curve, elasticity is equal to one at the midpoint. Calculate the midpoint of the demand curve, which is the average of the intercepts: (6 + 0)/2 = 3. Therefore, the price at which elasticity is one is \$3.
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