Question

1. Which method of measuring elasticity is used in above diagram? (1m)
2. Mention the type of elasticity at point ‘C’? (1m)
3. Find out the elasticity at point ‘D’ by applying formula (2m)

Answer 1

1. The point method or geometric method is used for measuring elasticity in the given diagram.
2. At point C, the demand is relatively inelastic.
3. As per the point method or geometric method,

Ed = `"Lower segment of demand curve below a given point"/ "Upper segment of demand curve above a given point"`

Ed = `"L" /"U"`

At point D,

Ed = `"ED" /"AD"`

Ed = 1 (Since ED = AD)

The length of lower segment is equal to the length of the upper segment.

Therefore, Ed = 1. It means that at point D, the demand is unitary elastic