Question 6 (1 point) A vertical demand curve has a price elasticity of demand equal to:...

Question

Question

Answer 1

Answer #1

Price elasticity of demand is the change in quantity demanded due to the change in the price of a commodity.

Ep = %change in quantity demanded / % change in prices = ((New Qd -Old Qd)/ Old Qd)/ (( New P - Old P)/ Old P)

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Suppose there is a price change from P1 to P2. Demand remains the same if good has a vertical demand curve (shown in the diagram above). Thus,

New Qd = Old Qd

According to formula: Ep = Ep = %change in quantity demanded / % change in prices = ((New Qd -Old Qd)/ Old Qd)/ (( New P - Old P)/ Old P)

Ep= ((Old Qd -Old Qd)/ Old Qd)/ (( P2 - P1)/ P1)

Ep = 0 / (( P2 - P1)/ P1) = 0

Hence, vertical demand curve has a price elasticity of demand as 0.

Answer 2

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