Question: A linear demand function is given in Figure 4.68. Economists compute elasticity of demand E for any quantity q 0 using the formula E =

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

price T d d (90. Po) Figure 4.68 quantity

price T d d (90. Po) Figure 4.68 quantity

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