Answer to Question #250023 in Microeconomics for bijiy

Question

1. A straight line demand curve is given. What will be elasticity of demand on the mid point of this curve.

Answer 1

If the demand curve is straight line, it has a unitary elasticity at the midpoint. The total revenue is maximum at this point. The value of Price Elasticity of Demand falls as price falls. The reason is that low priced products have a more inelastic demand than high priced products, because consumers are not that price sensitive when the product is inexpensive, Similarly the value of Price Elasticity of Demand is higher when the prices increase because consumers are more sensitive to price change when the good is expensive.