In: Economics
4. Elastic, inelastic, and unit-elastic demand
The following graph shows the demand for a good.
For each of the regions listed in the following table, use the midpoint method to identify if the demand for this good is elastic, (approximately) unit elastic, or inelastic.
Region | Elastic | Inelastic | Unit Elastic | |
---|---|---|---|---|
Between W and X | ||||
Between Y and Z | ||||
Between X and Y |
True or False: The value of the price elasticity of demand is equal to the slope of the demand curve.
True
False
Elastic |
Inelastic |
Unit Elastic |
||
---|---|---|---|---|
Between W and X | Elastic | |||
Between Y and Z | Inelastic | |||
Between X and Y | Unit elastic |
Explanation:
Between W and X:
PED = ∆Q/∆P *( P1 + P2 / Q1 + Q2)
= (28 - 8) / (90 - 140) * (140 + 90) / (8 + 28)
= (20 / -50) * (230 / 36)
= 4,600 / -1,800
= -2.56 (the absolute value is 2.56)
Since, PED is greater than 1, demand for the good is elastic.
Between Y and Z:
PED = ∆Q/∆P *( P1 + P2 / Q1 + Q2)
= (56 - 36) / (20 - 70) * (20 + 70) / (36 + 56)
= (20 / -50) * (90 / 92)
= 1,800 / -4,600
= -0.39 (the absolute value is 0.39)
Since, PED is less than 1, demand for the good is inelastic.
Between X and Y:
PED = ∆Q/∆P *( P1 + P2 / Q1 + Q2)
= (36 - 28) / (70 - 90) * (90 + 70) / (28 + 36)
= (8 / -20) * (160 / 64)
= 1,280 / -1,280
= -1 (the absolute value is 1)
Since, PED is equal 1, demand for the good is unit elastic.