Question

How can you determine the price elasticity of demand at any point on a non-linear demand curve? Explain it with the help of a diagram.

Answer 1

The point technique can be used to calculate the price elasticity of demand on a non-linear demand curve, or demand curve that is not a straight line. We must draw a tangent to the demand curve via a selected point in order to determine the price elasticity of demand at any given location on a curved demand curve. As a result, the tangent will be split in half at this point. The ratio of the lower line segment to the upper line segment is how we calculate the elasticity of the tangent at this location. This provides the demand curve's price elasticity at that specific demand curve point. Take a look at Figure. Assume that the demand curve DD's point R is where we wish to assess elasticity. At point R, we construct a line AB that is tangent to the demand curve DD. The price elasticity of the demand curve DD at R will be equal to the elasticity of the tangent AB at point R, since the demand curve's slope at R is equal to the tangent's slope there.

Thus, e_P at R = `"Lower line segment"/"Upper line segment"`

= `"BR"/"RA"`