141.05.1-MC - MANK08 If the price elasticity of demand is...

141.05.1-MC - MANK08 If the price elasticity of demand is 1.5, regardless of which two points on the demand curve are used to compute the elasticity, then demand is a. perfectly inelastic, and the demand curve is vertical. b. elastic, and the demand curve is a straight, downward-sloping line. c. perfectly elastic, and the demand curve is horizontal. d. elastic, and the demand curve is something other than a straight, downward-sloping line. Icon Key 141.05.1-MC-MANK08

Transcript

00:01 Hello! we use this linear demand curve, so this is linear and we can easily find this equation.

00:13 So the price and quantity has very simple linear relationship.

00:23 It's 750 minus quantity.

00:29 And now we use this linear demand curve to answer.

00:34 These questions so when the price is 500 we can calculate that quantity because they have the same inverse function we can use both of them so the quantity would be equal to 250 and we need to calculate the point elastic and we need to calculate the point of demand.

01:11 So we use the derivative of quantity with respect to price, which is negative 1 because the slope is linear and it's equal to negative 1.

01:25 So when i have this, the price elasticity of demand would be equal to negative 1 times the ratio of price over quantity.

01:49 Here we have negative 2 and since by the absolute value it's greater than 1 demand is elastic.

01:59 So the first answer is elastic.

02:06 Demand is elastic.

02:09 B, when price is equal to 175, we can calculate that quantity would be equal to 575.

02:25 And the price elasticity of demand would be equal to negative 1 times price over quantity and if we calculate we can find that this is equal to approximately 0 .3 and by the absolute value is it's less than one so demand is inelastic at this point so in the part a we had elastic demand now now it's inelastic.

03:10 Okay.

03:11 Now part c...

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