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Question
Indicate the degree of elasticity of demand of the following demand curves.
Solution
Left Diagram (Horizontal Demand Curve)
Degree of Elasticity: Perfectly Elastic Demand
The horizontal demand curve indicates that the quantity demanded is infinitely responsive to price changes. Even a tiny change in price would cause the quantity demanded to change significantly. Therefore, the price elasticity of demand is infinite (Ed = ∞).
Right Diagram (Downward Sloping Demand Curve)
Degree of Elasticity: Unitary Elastic Demand
The downward-sloping straight-line demand curve from the origin suggests that the percentage change in quantity demanded equals the percentage change in price at every point on the curve. Therefore, the price elasticity of demand is unitary elastic (Ed = 1).
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