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Microeconomics

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Moderate

Consumer Comparatives and Elasticity: Elastic Precognition

MICRO-HVVMNN

On any downward-sloping linear demand curve, there are some points on the curve where demand is elastic, some points where it is inelastic, and one point where it is unit elastic.

Without even doing any math or knowing the exact formula for the demand curve, we can already figure out that the elastic part of the demand curve occurs on the left side of the demand curve. That is, at low quantities. Similarly, the inelastic part of the demand curve occurs at high quantities. It looks like this:

How do we know this?

A

Because a steeper slope indicates a less elastic good.

B

Because when the price is already high, it does not matter too much if it increases a little more.

C

Because high prices lead people to change their preferences, making consumers more reactive to prices and shifting demand. Similarly, low prices make people care less about price and shift demand.

D

Because when price is high and quantity is low, a given price and quantity change represents a small percentage change in price and a large percentage change in quantity.