Elasticity along the Demand curve Flashcards
(12 cards)
Does price elasticity of demand (PED) stay constant along a linear demand curve?
No — even though the gradient is constant, elasticity varies along the curve.
What happens to PED at the top of the demand curve?
Elastic (PED > 1): % change in quantity > % change in price.
What is PED at the midpoint of the demand curve?
Unitary elastic (PED = -1): % change in quantity = % change in price.
What happens to PED at the bottom of the demand curve?
Inelastic (PED < 1): % change in quantity < % change in price.
What is PED when demand is perfectly elastic?
PED = ∞ (horizontal demand curve): consumers buy any amount at a fixed price.
What is PED when demand is perfectly inelastic?
PED = 0 (vertical demand curve): quantity demanded does not change with price.
What does PED measure?
The responsiveness of quantity demanded to a change in price, using percentage changes.
What happens to total revenue when price decreases and demand is elastic (PED > 1)?
Total revenue increases.
What happens to total revenue when price decreases and demand is inelastic (PED < 1)?
Total revenue decreases.
Where on the demand curve is revenue maximised?
At the midpoint, where PED = 1 (unitary elasticity).
Why does PED < 1 mean inelastic?
Because % change in quantity demanded is less than the % change in price.
What does the shape of a linear demand curve imply about PED?
It starts elastic at the top, is unitary in the middle, and inelastic at the bottom.
