Question

What can you conclude about the relationship between the slope of the demand curve above and its elasticity? The demand curve above has a constant slope of _________, but elasticity _________ as we move down the curve.Explain in a nontechnical way why demand is elastic in the upper-left segment of the demand curve and inelastic in the lower-right segment.

Answer 1

The slope of a demand curve is constant for a straight line and does not equal elasticity, which varies along the curve and measures the percentage change in quantity demanded in response to a price change. Demand is elastic at the upper-left segment and inelastic at the lower-right segment of the curve.

Step-by-step explanation:

The slope of a demand curve is a measure of how much the price changes compared to how much the quantity demanded changes and it remains constant for a straight-line demand curve. However, elasticity refers to the responsiveness of the quantity demanded to a change in price and it changes along the curve. This is because elasticity is a percentage change which takes into account not only the changes in quantity and price but also their initial levels.

In the upper-left segment of the demand curve, demand is elastic because consumers are more sensitive to price changes when the price is high, meaning that a small decrease in price results in a comparatively large increase in quantity demanded. Conversely, in the lower-right segment, the demand is inelastic because at lower prices, consumers are less responsive to price changes, so a decrease in price doesn't evoke such a significant change in quantity demanded.

Answer 2

The demand curve above has a constant slope of -1, but elasticity decreases as we move down the curve.

The demand is elastic in the upper-left segment of the demand curve and inelastic in the lower-right segment because,

-When the initial price is high and the initial quantity is low, the percentage change in quantity exceeds the percentage change in price, making demand elastic.

-When the initial price is low and the initial quantity is high, the percentage change in quantity is less than the percentage change in price, making demand inelastic.

Step-by-step explanation:

The slope is defined as the division of change in the variable on the y-axis to the change in the variable on the x-axis. The slope of the demand curve is equal to the change in price divided by the change in quantity.

The demand elasticity is set same as the slope of the demand curve. The demand is elastic in the upper-left segment of the demand curve, when the initial price is high and the initial quantity is low. The demand is made elastic, when the percentage change in the quantity is observed higher than the change in percentage in the price.