B
Benjamin
Member
I'm confused about what represents unit elasticity in considering a 45 degree line (e.g. y = 10 - x) vs a rectangular hyperbola (e.g. y = 1 / x).
To clarify that I'm using the right formula, PED = (%change D)/(%change P)?
The CMP (Ch3, s2.3, p6) has a rectangular hyperbola as unit elasticity but if you chart P = 1 / Q and take a starting point of P = 1 where Q = 1, if you move to P = 2 and Q = 1/2, the % change in P is +100% while the % change in Q is -50%, i.e. PED = -2, not -1.
And then comparing to a -45 degree line, it appears that anywhere along the line, PED is -1 e.g. if you start at P = 5 and Q = 5 and you move along the curve to P = 7 and Q = 3, it's a +40% move in P and a -40% move in Q, PED = -1 and this seems to be true anywhere along a 45 degree line.
Now, in Ch6, s1.3, p.4, there's a graph that shows elasticity changing as you move along a straight line but as above, I'd assume it to be constant anywhere along a straight line.
Could you please clarify how all this works and regarding straight lines, if there's any difference between it being exactly 45 degrees or not (obviously more elastic if flat i.e. small change in price leads to large change in Q but I'm wondering if there's any "special case" aspects to a 45 degree line).
Thanks in advance!
To clarify that I'm using the right formula, PED = (%change D)/(%change P)?
The CMP (Ch3, s2.3, p6) has a rectangular hyperbola as unit elasticity but if you chart P = 1 / Q and take a starting point of P = 1 where Q = 1, if you move to P = 2 and Q = 1/2, the % change in P is +100% while the % change in Q is -50%, i.e. PED = -2, not -1.
And then comparing to a -45 degree line, it appears that anywhere along the line, PED is -1 e.g. if you start at P = 5 and Q = 5 and you move along the curve to P = 7 and Q = 3, it's a +40% move in P and a -40% move in Q, PED = -1 and this seems to be true anywhere along a 45 degree line.
Now, in Ch6, s1.3, p.4, there's a graph that shows elasticity changing as you move along a straight line but as above, I'd assume it to be constant anywhere along a straight line.
Could you please clarify how all this works and regarding straight lines, if there's any difference between it being exactly 45 degrees or not (obviously more elastic if flat i.e. small change in price leads to large change in Q but I'm wondering if there's any "special case" aspects to a 45 degree line).
Thanks in advance!