As you move right along a linear demand function, the price elasticity of demand:
Group of answer choices
A becomes more elastic.
B becomes more inelastic.
C does not change.
D becomes infinite.
E none of the other answers.
The correct answer and explanation is:
The correct answer is B: becomes more inelastic.
As you move right along a linear demand curve, the price elasticity of demand becomes more inelastic. To understand this, it’s important to know how elasticity works. Price elasticity of demand (PED) measures how responsive the quantity demanded is to a change in price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price.
At the upper left portion of a demand curve, where prices are high and quantities are low, demand is typically more elastic. Small changes in price cause larger percentage changes in quantity demanded. However, as you move to the lower right part of the demand curve, where prices are lower and quantities are higher, the demand becomes less responsive to price changes. This is because consumers have already bought most of the quantity they are willing to purchase, so further reductions in price lead to smaller increases in quantity demanded.
This phenomenon happens because the percentage change in price becomes less significant compared to the percentage change in quantity demanded as you move along the curve. Essentially, the demand curve becomes steeper as you move right, leading to smaller elasticity values (meaning demand is more inelastic).
This is a feature of linear demand curves, where the elasticity is not constant across the entire curve but varies depending on the point on the curve. In the extreme right end of the demand curve, the price elasticity of demand approaches zero, meaning that changes in price have almost no effect on the quantity demanded, making demand highly inelastic.