Refer to the accompanying figure. Assume the slopes of the two demand curves are the same. Let eA denote the price elasticity of demand at point A, and let eB denote the price elasticity of demand at point B. Which of the following statements is correct? A)eA eB B)eA

Question

Refer to the accompanying figure. Assume the slopes of the two demand curves are the same. Let eA denote the price elasticity of demand at point A, and let eB denote the price elasticity of demand at point B.  Which of the following statements is correct?
A)eA > eB 
B)eA < eB 
C)eA = eB 
D)eA ÷ eB < 0

Quizplus · Accepted Answer

The price elasticity of demand at a point is given by (P/Q)× (1/|slope|). Since the slopes of the two demand curves are equal and price is the same at points A and B, the only factor that changes between the two is Q. Since Q is higher at point B than point A, the price elasticity of demand will be lower at point B than point A.

Refer to the Accompanying Figure