TUMARONG, ANGELA DENISE M.

B368

2.) (Key Question) with the accompanying demand data below and
using the midpoints
formula for Ed, determine price elasticity of demand for each of
the four possible $1
price changes. What can you conclude about the relationship
between the slope curve
and its elasticity? Explain in nontechnical way why demand is
elastic in the northwest
segment of the demand curve and inelastic in the southeast
segment.

Product Price Quantity Demanded

$5 1
4 2
3 3
2 4
1 $5

ANSWER:

Graph of the Data

To calculate the elasticity, we use the midpoint formula.

Moving from $5 to $4: Moving from $4 to $3:

Moving from $3 to $2: Moving from $2 to $1:

The demand curve depicted in the graph exhibits a constant slope of -1, indicating a
direct inverse relationship between price and quantity demanded. However, the degree
of responsiveness to price changes, known as price elasticity of demand, varies along
the curve. As we move downward along the curve, the price elasticity of demand
decreases. This means that a given percentage change in price results in a smaller
percentage change in quantity demanded, indicating inelastic demand. This is
observed when the initial price is low and the initial quantity is high. Conversely,
when the initial price is high and the initial quantity is low, the price elasticity of
demand increases, indicating elastic demand. This means that a given percentage
change in price results in a larger percentage change in quantity demanded. This is
because, at higher prices, consumers are more sensitive to price changes and are more
likely to adjust their consumption accordingly.