Question

5. The variety of demand curves

The following graph displays four demand curves (LL, MM, NN, and OO) that intersect at point A.

Using the graph, complete the table that follows by indicating whether each statement is true or false.

 Between points A and E, curve 00 is perfectly inelastic.

 Curve MM is less elastic between points A and C than curve NN is between points A and D.

 Between points A and D, curve NN is elastic.

Answer 1

a)

Between points A and E, curve OO is perfectly inelastic: True

Reason: Curve OO is a straight line showing perfectly inelastic nature of demand, as changes in price will have no effect on quantity

b)

MM is less elastic between A and C than curve NN between A and D: False

Reason: Since OO is perfectly inelastic curve and elasticity increases as the curve shifts from being vertical to horizontal, curve MM will be more elastic than NN, as NN is nearer to the inelastic curve OO and MM is nearer to the elastic curve LL.

c)

Between A and D, curve NN is elastic: False

Reason: As NN is nearer to the inelastic curve OO, it will be inelastic in nature