Reference no: EM13690956
Price elasticity of demand for this curve at any arbitrary point (say point E). To do so, first write the algebraic form of this
Demand curve as Q = a + bP.
a. With this demand function, what is the value of P for which Q = 0?
b. Use your results from part a together with the fact that distance X in the figure is given by the current price, P*, to show that distance Y is given by (remember, b is negative here, so this really is a positive distance).
c. To make further progress on this problem, we need to prove Equation 3.13 in the text. To do so, write the definition of price elasticity as:
Now use the fact that the demand curve is linear to prove Equation 3.13.
d. Use the result from part c to show that | |?. We use the absolute value of the price elasticity here because that elasticity is negative, but the distance X and Y are positive.
e. Explain how the results of part d can be used to demonstrate how the price of elasticity of demand changes as one moves along a linear demand curve.
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