Worked-Out problem 2.3 states that the elasticity of demand is -.46 when price is $2.51, and elasticity is -.59 when price increases to $2.92. For linear demand curves, why does the absolute value of elasticity increase when price increases? (Hint: Note that Equation 6 can be rewritten as Ed = slope * P/Q for a linear demand curve).
A) For a linear demand curve, the slope is the same at each point along the line. For the demand curve used in this problem, the coefficient on price in the demand function (ΔQ/ΔP) = -73.17, so the slope of the demand curve = -1/73.17.
B) As we move up the demand curve from point A to point B, P increases and Q decreases. P/Q is larger at point B than point C. Therefore, as we move up a linear demand curve, the absolute value of elasticity will always increase.
C) Both A and B.
D) None of the above