Question

Write an equation to the linear demand function.

Answer 1

The point method of measuring elasticity as the ratio of line segment below the point and line segment above the point can be used to illustrate elasticity at various points on the linear demand curve.

(1) At point A (where the demand curve touches the vertical axis)

e_p at A `= "Line segment below A"/"Line segment above A"`

`= (AB)/O` infinity (∞)

(2) At any point above the mid-point but below A, say at E

e_p at E `= (BE)/(EA)>1`

because the lower segment is greater than the upper segment, i.e., BE > EA

(3) At the mid-point D

e_p at D = `(BD)/(DA) = 1`

because the lower segment equals the upper segment, i.e., BD = DA

(4) At any point below the mid-point but above B, say at C

e_p at C = `(BC)/(CA) < 1`

because the lower segment is smaller than the upper segment, i.e., BC < CA.

(5) At point B (where the demand curve touches the horizontal axis)

e_p at B = `0/(AB) = 0`