On a straight-line downward-sloping demand curve, where is the maximum elasticity located?

On a straight-line downward-sloping demand curve, where is the maximum elasticity located?

• A. Where it intersects the supply curve
• B. At the horizontal intercept
• C. At the vertical intercept
• D. At the midpoint

Answer: (C)

On a straight-line downward-sloping demand curve, price elasticity of demand varies along the curve because E = (dQ/dP) × (P/Q). The slope dQ/dP is constant, but the ratio P/Q changes as you move along the line. As you approach the top end of the curve where price is high and quantity demanded is very small, P/Q becomes very large, so elasticity (in absolute value) becomes very large. In the limit, as quantity approaches zero at the price intercept, elasticity tends to infinity. So the maximum elasticity is at the vertical intercept, the point where price is high and quantity demanded is zero.

On a straight-line downward-sloping demand curve, price elasticity of demand varies along the curve because E = (dQ/dP) × (P/Q). The slope dQ/dP is constant, but the ratio P/Q changes as you move along the line. As you approach the top end of the curve where price is high and quantity demanded is very small, P/Q becomes very large, so elasticity (in absolute value) becomes very large. In the limit, as quantity approaches zero at the price intercept, elasticity tends to infinity. So the maximum elasticity is at the vertical intercept, the point where price is high and quantity demanded is zero.