2.16 : Elasticity of a Linear Demand Curve

A linear demand curve, which plots the relationship between price and quantity demanded, is a straight line, but the elasticity along this line is not constant. This means that the responsiveness of consumers to price changes varies at different points on the line.

Vertical Intercept: Quantity demanded is zero; elasticity theoretically approaches infinity due to division by zero, making it not directly calculable.

Elastic Demand Zone: Between the vertical intercept and the midpoint, demand is elastic (PED > 1), indicating high sensitivity to price changes. Consumers readily adjust their consumption based on price, especially for goods with substitutes.

Midpoint (Unitary Elastic Demand): At the midpoint, elasticity is exactly 1, showing a balanced, proportionate change in price and quantity demanded. This represents equal responsiveness to price changes.

Inelastic Demand Zone: Beyond the midpoint towards the horizontal intercept, demand becomes inelastic (PED < 1). Consumers show less sensitivity to price changes, typical for necessities or goods with fewer substitutes.

Horizontal Intercept: Approaching zero price, the curve suggests a maximum quantity demanded. Elasticity is very low or approaches zero, indicating minimal increases in demand despite further price reductions, representing a theoretical boundary condition.