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Chapter 5: Q.3 (page 129)

Why is the demand curve with constant unitary elasticity concave?

Short Answer

Expert verified

The demand curve with constant unitary elasticity is concave because at high prices, a one per cent rise in prices causes a one per cent rise in quantity.

Step by step solution

01

Step 1. Introduction:

A condition in which a price change of one percent leads in a quantity change of one percent is known as constant unitary elasticity in either a supply or demand curve. A demand curve having constant unitary elasticity has a curved shape and progresses from a higher slope on the left to a flatter slope on the right.

02

Step 2. Explanation:

Because a one percent reduction in price leads in more than one percent gain in output at higher prices, the demand curve with constant unitary elasticity is concave. The price drops are not similar in absolute terms. The left part of the curve begins with high prices and gradually decreases as it moves towards the right end. This creates a curved, concave shape with a steeper demand slope on the left and a flatter demand slope on the right.

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Most popular questions from this chapter

Suppose that business travellers and vacationers have the following demand for airline tickets from Chicago to Miami:

Price

Quantity Demanded (business travellers)

Quantity Demanded (vacationers)

\(150

2,100 tickets

1,000 tickets

200

2,000

800

250

1,900

600

300

1,800

400

  1. As the price of tickets rises from \)200 to $250, what is the price elasticity of demand for (i) business travellers and (ii) vacationers? (Use the midpoint method in your calculations.)
  2. Why might vacationers have a different elasticity from business travellers?

Suppose the cross-price elasticity of apples with respect to the price of oranges is 0.4, and the price of oranges falls by 3%. What will happen to the demand for apples?

In competitive markets, farmers adopt new technologies that will eventually reduce their revenue because

a. each farmer is a price taker.

b. farmers are short-sighted.

c. regulation requires the use of best practices.

d. consumers pressure farmers to lower prices.

When someone鈥檚 kidneys fail, the person needs to have medical treatment with a dialysis machine (unless or until they receive a kidney transplant) or they will die. Sketch a supply and demand diagram, paying attention to the appropriate elasticities, to illustrate that the supply of such dialysis machines will primarily determine the price.

The equation for a demand curve is P = 2/Q. What is the elasticity of demand as price falls from 5 to 4? What is the elasticity of demand as the price falls from 9 to 8? Would you expect these answers to be the same?

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