Question

The Dangerous Curves box titled "Slope and Elasticity," states that when two demand curves share a point, then for a given price change and starting at that shared point demand will be more elastic along the flatter curve. Does this statement remain true if we replace the word "starting" with the word "ending"? Explain why or why not.

Short answer

Yes, the statement remains true even if we replace the word 'starting' with 'ending'. The flatter demand curve will always show more elasticity due to its slope, regardless of whether we start or end at the shared point.

Step-by-step solution

Understand elasticity and slope

The elasticity of demand measures how much quantity demanded changes when price changes. Typically, a flatter demand curve indicates a more elastic demand, because a small change in price leads to a large change in quantity demanded.

Analyze the statement

In the given statement, it explains that for a given price change, starting at the shared point, demand will be more elastic along the flatter curve. This is because the quantity change given the price change would be larger on the flatter curve compared to a steeper demand curve.

Evaluate the new scenario

If we replace 'starting' with 'ending', the statement still holds true. The flatter curve will continue to have greater elasticity compared to the steeper curve, no matter if we start or end at the shared point. This is because the elasticity of demand is rooted in the overall shape and slope of the demand curve, which do not change based on the direction we look at the curves.

Key concepts

Demand Curves

Imagine a graph where we can visualize people's desire to purchase a product at various price points. This graph is known as a demand curve. It typically slopes downwards from left to right, indicating that as the price of an item goes down, consumers' willingness to buy more of that item goes up.

These curves are foundational in economics because they encapsulate the relationship between the price of a good or service and the total quantity of it that consumers are willing to purchase at that price. By examining the demand curve, businesses can predict consumer behavior and make informed pricing decisions.

Slope of Demand Curve

The slope of a demand curve represents how sensitive consumers are to price changes. A steeply sloped demand curve means that price changes have a more significant impact on the quantity demanded, signaling that consumers are more responsive to price changes. Contrastingly, a flatter slope suggests consumers are less sensitive to price changes.

It's essential to understand that the slope of the demand curve is not constant. It can change at different points along the curve depending on the product, the existence of substitutes, and consumer preferences. These factors contribute to how steep or flat the demand curve appears, which in turn reflects the price sensitivity of consumers.

Elasticity of Demand

Elasticity of demand is a measure of how consumers adjust their quantity demanded when the price changes. It's a ratio that compares the percentage change in quantity demanded to the percentage change in price. If the quantity demanded changes significantly with a small price change, we say the demand is elastic.

Several factors affect demand elasticity, such as the availability of substitutes, the necessity of the good, and the proportion of income spent on the good. When considering elasticity, we move beyond the slope and look at how consumer behavior varies with price changes. Elasticity gives businesses and policymakers crucial insights into how changes in price can influence the overall demand for a product.

Quantity Demanded

The term quantity demanded refers to the specific amount of a good or service that consumers are willing and able to purchase at a given price. It's a point on the demand curve that corresponds to a particular price level.

When prices change, the quantity demanded adjusts according to consumers' price sensitivity, which is depicted by the position and shape of the demand curve. It's crucial to note that 'quantity demanded' is different from 'demand'—which encompasses the entire demand curve—because it focuses on a single point where consumers are making their purchasing decisions based on the current price.