Consider a linear demand function in (Q,P) space with vertical intercept (0,a) and horizontal intercept (b,0)....
Consider a linear demand function in (Q,P) space with vertical intercept (0,a) and horizontal
intercept (b,0). Consider an arbitrary point, denoted d, on the demand line. Beginning with the definition of point elasticity of demand, show that it is equal to -(bd / ad).
Homework Answers
Elasticity of demand is defined as the responsiveness of quantity demand due to the change in the change in price of the good. Mathematically it is expressed as
The point method formula for elasticity is
Refer the attached picture below
The first part of the formula is the slope of the demand curve therefore the vaue of the first part will be eqaul to
The negative sign is due to the Negative downward sloping curve.
At point d assume the price and quantity equal to d.
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