A linear downward-sloping demand curve has price elasticities (in absolute values)that
A)increase as price decreases.
B)remain constant along the demand curve.
C)decrease as price decreases.
D)are greater than or equal to 1.

Question

Quizplus · Accepted Answer

The price elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in price. For a linear downward-sloping demand curve, the price elasticity of demand varies along the demand curve. At higher prices, the absolute value of price elasticity is lower (inelastic demand) because a change in price results in a relatively small change in quantity demanded. At lower prices, the absolute value of price elasticity is higher (elastic demand) because a change in price results in a relatively large change in quantity demanded. Therefore, as price decreases, the absolute value of price elasticity of demand increases (i.e., demand becomes more elastic), which means that choice C is the correct answer.

A Linear Downward-Sloping Demand Curve Has Price Elasticities (In Absolute