Let us consider a linear demand curve $q = a - bp$. On the same demand curve, arrange the elasticity in ascending order.
(A) $|e_D| = 1$.
(B) $|e_D| < 1$.
(C) $|e_D| > 1$.
(D) $|e_D| = 0$.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (D), (B), (A), (C)
For a linear demand curve q=a−b the price elasticity of demand (|e₍D₎|) varies along the curve:
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At the lower end of the demand curve (where price is low and quantity is high), elasticity is less than 1 → inelastic demand.
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At the midpoint, elasticity is equal to 1 → unitary elastic demand.
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At the upper end (where price is high and quantity is low), elasticity is greater than 1 → elastic demand.
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At the point where the demand curve meets the quantity axis, elasticity is zero, because a small change in price causes no change in quantity.
