The above figure shows three demand curves labeled D1, D2, and D3. Rank these three demand curves in terms of elasticity at a price of c
What will be an ideal response?
First, compare D1 to D2.
Moving from price a to price c, dQ/dp = Q/(c - a).
Elasticity equals Q/(c - a) ? (c/Q) = c/(c - a) for both D1 and D2.
To compare D2 with D3, consider that they have the same slope; call it b.
Then E1 = bc/Q1 and E3 = bc/Q3. Since Q3 > Q1, D1 is more elastic.
Thus, E1 = E2 > E3 (in absolute terms).
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