Microeconomics · free preview
Measuring Elasticity along a Curve
The same move between two points reports different percentages depending on direction, the midpoint method removes the ambiguity, and along a straight demand curve elasticity falls from elastic to inelastic as price falls.
1. The base-rate ambiguity
The base-rate ambiguity
2. Elasticity travels along a straight line
Elasticity travels along a straight line
3. Curved demands can be constant
Curved demands can be constant
4. Elasticity at work in a formula
Elasticity at work in a formula
5. The midpoint computation
Price rises from 20 to 24 dollars and quantity falls from 100 to 80 units. Using the midpoint method, what is the arc elasticity of demand?
6. Elasticity along a line
A linear demand curve runs from 60 dollars and zero quantity down to 120 units at zero price. Where on this curve is demand unit elastic?
7. Point elasticity on a line
A demand curve is Q = 160 - 4P. Compute the point elasticity of demand at the price P = 20 dollars, using the formula E = |dQ/dP| times P/Q, and write the number.
8. Midpoints in action
Price rises from 10 to 14 dollars and quantity falls from 100 to 80 units. Using the midpoint method, what is the price elasticity of demand?
9. The linear curve's itinerary
A straight-line demand curve runs from a price of 60 at zero quantity to a quantity of 120 at zero price. How does elasticity behave along it?
10. Point elasticity at 30
A demand curve is Q = 160 - 4P. Compute the point elasticity of demand at the price P = 30 dollars using the formula slope times P over Q, and write the absolute value.
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