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For a downward sloping straight-line demand curve, the absolute value of the own price elasticity along the demand curve: a
For a downward sloping straight-line demand curve, the absolute value of the own price elasticity along the demand curve:
a. is constant since a straight-line demand curve has a constant slope.
b. is equal to twice the slope of the inverse demand curve.
c. increases as we move from lower price to higher price along the demand curve.
d. tells us how responsive suppliers are with respect to a price change.
Expert Solution
- The correct option is: c. increases as we move from lower price to higher price along the demand curve.
We calculate the price elasticity of demand as:
For a linear demand curve, the rate of change of the quantity demanded with respect to price (the slope), , is constant along the demand curve. As we move upwards to higher prices, increases and decreases, and this increases the elasticity of demand. This means that the demand becomes more elastic as we move upwards to higher prices along the demand curve.
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