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The Elasticity of a Straight Line Demand Curve
In algebraic terms, the slope of a straight line demand curve is constant. Does it follow that the elasticity of a straight line demand curve is constant?
For better or worse, it does not. To see why elasticity changes along a straight line demand curve, begin with the definition of the elasticity of demand – the percentage change in quantity demanded caused by a 1 percent change in price.
Because the demand curve in the diagram has a slope of -1, a $1.00 cut in price will always produce a 1 unit increase in demand. At the left-hand end of the demand curve, the price is very high and you are purchasing very little. At this point, the $1.00 cut in price is a small percentage change in the high price while the 1 extra unit demanded is a big percentage change in the small quantity demanded. Here, then, elasticity is very high.
Conversely, toward the right hand end of the demand curve, price is very low and quantity demanded is very high. Here another $1.00 cut represents a big percentage change in the low price while 1 more unit demanded represents a small change in the large number of units demanded. Here, then, elasticity is very low.
Move the orange price-quantity point along the demand curve and see how the value of elasticity changes.