Question

Observe the following figure and answer the questions given lowing below it:

Identify and explain the degree of elasticity of demand in the figure.

Answer 1

Degree of Elasticity: Unitary elastic demand

Explanation:

When a percentage change in price leads to a proportionate change in quantity demanded, then demand is said to be unitary elastic. For example, 50% fall in the price of a commodity leads to 50% rise in the quantity demanded.

In the given figure, when price falls from OP to OP₁ (50%), demand rises from OQ to OQ₁ (50%). Therefore, the slope of the demand curve is a ‘rectangular hyperbola’.