A linear demand function is given in Figure 4.68. Economists compute elasticity of demand E for any quantity q₀ using the formula

E = d₁∕d₂,

where d₁ and d₂ are the vertical distances shown in Figure 4.68.
(a) Explain why this formula works.
(b) Determine the prices, p, at which

(i) E > 1 (ii) E < 1 (iii) E = 1

Transcribed Image Text:

price T d₂ d₁ Į (90. Po) Figure 4.68 quantity