Question

4. Elastic, inelastic, and unit-elastic demand 

The following graph shows the demand for a good.

For each of the regions listed in the following table, use the midpoint method to identify if the demand for this good is elastic, (approximately) unit elastic, or inelastic.

Region	Elastic	Inelastic	Unit Elastic
Between W and X
Between Y and Z
Between X and Y

True or False: The value of the price elasticity of demand is equal to the slope of the demand curve.

True

False

Answer 1

	Elastic	Inelastic	Unit Elastic
Between W and X	Elastic
Between Y and Z		Inelastic
Between X and Y			Unit elastic

Explanation:

Between W and X:

PED = ∆Q/∆P *( P1 + P2 / Q1 + Q2)

         = (28 - 8) / (90 - 140) * (140 + 90) / (8 + 28)

         = (20 / -50) * (230 / 36)

         = 4,600 / -1,800

         = -2.56       (the absolute value is 2.56)

Since, PED is greater than 1, demand for the good is elastic.

Between Y and Z:

PED = ∆Q/∆P *( P1 + P2 / Q1 + Q2)

         = (56 - 36) / (20 - 70) * (20 + 70) / (36 + 56)

         = (20 / -50) * (90 / 92)

         = 1,800 / -4,600

         = -0.39       (the absolute value is 0.39)

Since, PED is less than 1, demand for the good is inelastic.

Between X and Y:

PED = ∆Q/∆P *( P1 + P2 / Q1 + Q2)

         = (36 - 28) / (70 - 90) * (90 + 70) / (28 + 36)

         = (8 / -20) * (160 / 64)

         = 1,280 / -1,280

         = -1       (the absolute value is 1)

Since, PED is equal 1, demand for the good is unit elastic.