Question

Please answer this ASAP: Consider the demand for an energy good, as depicted by the graph below.

Price P' Q' Q" Quantity

Which of the following statements is true, if you consider estimating the point elasticity of demand between P' and P"?

If the elasticity is estimated using the point elasticity equation, the absolute value of the estimated elasticity will be larger if the starting point is P' rather than P".

The estimated elasticity, when using the point elasticity formula, will always be relatively more elastic when you move from a lower price to a higher price.

The estimated elasticity will be identical regardless of which price is the starting price.

None of the other statements are true.

Answer 1

Answer.) If the elasticity is estimated using the point elasticity equation, the absolute value of the estimated elasticity will be larger if the starting point is p' rather than p'' .

Explanation :

If P₀ is the initial price and Q₀ is the initial quantity demanded,

then the point elasticity formula is given by :

analyzing the graph and the formula, If we start with P' then the numerator is higher and the denominator containing Q' is lower as compared to the case when we start with P'' and Q''. Simple mathematical logic tells us that the absolute value of elasticity will be higher if we start with P' rather than P'' . Note that the partial derivative remains the same in both cases.