Sia
Question
Microeconomics
Posted 8 months ago
What happens to price elasticity of demand as the price of a good increases along a linear demand curve?
Choose 1 answer:
(A) Price elasticity of demand increases.
(B) Price elasticity of demand decreases then increases.
(C) Price elasticity of demand stays the same.
D Price elasticity of demand increases then decreases.
(E) Price elasticity of demand decreases.
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Answer from Sia
Posted 8 months ago
Solution
a
Definition of Price Elasticity of Demand: Price elasticity of demand (PED) measures the responsiveness of the quantity demanded of a good to a change in its price. It is calculated as
b
Linear Demand Curve: Along a linear demand curve, the slope remains constant, but the elasticity varies at different points
c
Elasticity at Different Points: At higher prices and lower quantities, the demand is more elastic because consumers are more responsive to price changes. Conversely, at lower prices and higher quantities, the demand is less elastic
d
Conclusion: As the price of a good increases along a linear demand curve, the price elasticity of demand increases
Answer
(A) Price elasticity of demand increases.
Key Concept
Price elasticity of demand increases along a linear demand curve as the price increases.
Explanation
On a linear demand curve, the price elasticity of demand is higher at higher prices and lower quantities because consumers are more sensitive to price changes. As the price increases, the demand becomes more elastic.
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