University of Central Florida (UCF) ECO2023 Principles of Microeconomics Final Practice Exam

Why is demand considered price elastic above the mid-point price on a linear demand curve?

Price changes are small relative to the order quantity.

Price changes are large relative to associated quantities.

Demand is considered price elastic above the mid-point price on a linear demand curve because, in this range, price changes result in relatively large changes in the quantity demanded. The concept of elasticity measures how sensitive the quantity demanded is to a change in price.

Above the mid-point of the demand curve, for any increase in price, the percentage decrease in quantity demanded tends to be greater than the percentage increase in price. This means that consumers are more responsive to price changes, leading to a significant drop in the quantity they are willing to purchase when prices rise. The linear nature of the demand curve illustrates that as prices increase, the slope results in larger percentage changes in quantity compared to percentage changes in price.

Thus, the correct answer highlights this relationship, emphasizing that the responsiveness of consumers' reactions to price changes is a hallmark of price elasticity in this part of the demand curve.

Get further explanation with Examzify DeepDiveBeta

Demand is always elastic above the mid-point.

Consumers are always willing to pay more above the mid-point.