How to Measure Point Elasticity of Demand in Demand Curve? – Explained

P (initial price) = OP0

Qd (initial quantity demanded) = OE

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?P (change in price) = – OP0 (-ve sign indicates a fall in price)

?Qd (change in quantity demanded) = OB – OE = EB (it is positive because the demand increases)

Hence, as we move downward along the straight-line demand curve AB, the value of the ‘lower segment’ reduces and the value of the ‘upper segment’ increases. As a result, the value of Ed diminishes with the increase in the value of numerator and a decrease in the value of denominator.

At the middle point of the demand curve, Ed = 1 (unity). At any point between the mid-point and the point joining the vertical axis, Ed < 1 and on all the points between the mid-point and the point where the demand curve touches the horizontal axis, Ed > 1.

The value of Ed is zero at the point where the demand curve touches the horizontal axis and it becomes infinity (i.e., Ed = ?) at the point where the demand curve touches the vertical axis (see panel (a) of figure 4.10).