Page 41 - VIRANSH COACHING CLASSES

At any point on the demand curve, Thus, at point P , demand is relatively
1
elasticity of demand is measured with the inelastic (ed < 1)
help of the following formula : 3) At point P , the point elasticity is measured
Lower segment of demand as : 2

Point elasticity = curve below a given point (L) P = P B = 6 = 3
2
of demand (Ed) Upper segment of demand 2 P A 2
2
curve above a given point (U) Thus, at point P , demand is relatively
2
elastic (ed > 1)
Demand curve may be either linear or
non-linear as shown below : 4) At point A, the point elasticity is ∞ because
upper segment is zero. (perfectly elastic
A) Linear Demand Curve : When the demand demand)
curve is linear i.e. a straight line, we extend 5) At point B, the point elasticity is zero
the demand curve to meet the Y axis at ‘A’ because lower segment is zero (perfectly
and X axis at ‘B’. Price elasticity of demand inelastic demand.)
at ‘X’ axis is zero and ‘Y’ axis is infinite.
Elasticity of demand will be different at B) Non-linear demand curve : When the
each point. demand curve is non-linear i.e. convex
to origin, to measure price elasticity of
Point method (Linear demand curve)
demand we have to draw a tangent ‘AB’
Y touching the given point on the demand
Ed = ∞
A curve and extending it to meet ‘Y’ axis at
point ‘A’ and ‘X’ axis at point ‘B’.
Price in ` P 2 Ed > 1 Lower segment of the tangent

P
Ed = 1
Ed = below a given point = L
P Ed < 1 Upper segment of the tangent U
1
above a given point
Ed = 0
0 B X Point method - Non-linear demand curve
Quantity Demanded Y
Fig. 3.16
A
Let us assume that AB is a demand curve d
and its length is 8 cm. Point elasticity at various
points on a linear demand curve can be measured Price P E
as follows : d

1) At point P, the point elasticity is measured
as :
PB 4 0 Q B X
P = = = 1
PA 4
Thus, at point P, demand is unitary elastic Quantity Demanded
(ed = 1) Fig. 3.17

2) At point P , the point elasticity is measured If EB = EA (Ed = 1) - Unitary elastic demand
1
as : P B 2 EB > EA (Ed >1) - Relatively elastic demand
P = 1 = = 0.33 EB < EA (Ed <1) - Relatively inelastic demand
1 P A 6
1
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