Which of the following statements is correct for the price elasticity of demand along a linear,downward-sloping demand curve?
A) The price elasticity of demand is constant because the slope is constant.
B) At low prices, demand is elastic but at high prices demand is inelastic.
C) At high prices, demand is elastic but at low prices demand is inelastic.
D) The price elasticity of demand is not defined for a linear demand curve because the slope is constant.
E) None of the above answers is correct.

Question

Quizplus · Accepted Answer

The price elasticity of demand measures how much the quantity demanded of a good responds to a change in the price of that good. Along a linear, downward-sloping demand curve, the elasticity varies: it is elastic (greater than 1) at high prices because a small percentage decrease in price leads to a relatively large percentage increase in quantity demanded. Conversely, at low prices, the demand becomes inelastic (less than 1) because a percentage decrease in price results in a smaller percentage increase in quantity demanded. This variation occurs despite the slope of the demand curve being constant because elasticity depends on the ratio of the percentage change in quantity demanded to the percentage change in price, which changes along the curve.

Which of the Following Statements Is Correct for the Price