Answer to Question #320406 in Macroeconomics for Rose

Question

With reference to price elasticity of demand, answer the following questions: 3.4.1 Indicate what the two (2) main determinants are that price elasticity of demand depends on. (2) 3.4.2 With the aid of a diagram (draw the diagram), illustrate and explain what a linear demand curve is, where exactly the top of the curve is and where the bottom of the curve is, and how elasticity values (coefficients) vary on the curve from being infinitely (perfectly) elastic to unit elastic and finally to completely (perfectly) inelastic.

Answer 1

3.4.1

Price levels.

The type of product or service.

3.4.2

A linear demand curve is a line representing the relationship between the demand for a product or service and its price. Everyone knows that sales are proportional to price: The more you charge for an item, the fewer you can expect to sell. On a linear demand curve, the slope remains the same, but the elasticity changes as we move upwards and downwards along the demand curve.

Therefore, as you move upward a long the linear demand curve, we move into the elastic region which is the top most part of the linear demand curve whereas moving downward, we move to the inelastic region which is the bottom most part of the linear demand curve as shown above.