2. Interpreting the price elasticity of demand Aa Aa The following graph shows t

Question

2. Interpreting the price elasticity of demand Aa Aa The following graph shows the demand for a good. PRICE (Dollars per unit) 140X Demand 90-,- 20 0 10 35 45 70 QUANTITY For each of the following regions, use the midpoint method to identify whether the demand for this good is elastic, (approximately) unit elastic, or inelastic. Elastic, Inelastic, or Unit Elastic? Region Between W and X Between X and Y Between Y and Z True or False: The value of the price elasticity of demand is equal to the slope of the demand curve. False O True

Explanation / Answer

Solution:

Region

Between W and X

Elastic

Between X and Y

Unitary elastic

Between Y and Z

Inelastic

Working:

Price

Quantity demanded

W

140

10

X

90

35

Y

70

45

Z

20

70

W and X

[35-10 / (35+10)/2] / [(90-140)/ (90+140)/2]

25/(45/2) / 50/ (230/2)

1.11 / 0.43

2.58

Elastic

X and Y

[(45-35) / (45+35)/ 2] / [70-90) / (70+90)/2]

(10/40) / (20/80)

0.25/0.25

1

Unitary elastic

Y and Z

[(70-45)/(70+45)/2] / [20-70) / (20+70)/2]

[25/57.5] / (50/45)

0.43/ 1.11

0.39

Inelastic

2) The value of the price elasticity of demand is equal to the slope of the demand curve

Solution: False

Explanation: In general, demand are likely to be elastic at relatively high prices, unit elastic at prices toward the middle of the demand curve and inelastic at relatively low prices, regardless of the linear or nonlinear construction of the demand curve.

Region

Between W and X

Elastic

Between X and Y

Unitary elastic

Between Y and Z

Inelastic

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