Question

If demand is linear with a negative slope, then price elasticity of demand is A. Elastic in the upper portion and inelastic in the lower portion. B. Inelastic in the upper portion and elastic in the lower portion. C. Inelastic throughout. D. Elastic throughout. Reset Selection

Answer 1

Answer:

In the case of a linear downward sloping demand curve,the price elasticity of demand is elastic in the upper portion and increasingly inelastic in the lower portion.Hence,the answer in this case would be option A.

Explanation:

• Based on the common consumer psychology,any rational consumer or buyer is relatively more responsive or reactive to any certain change in market price of any normal good or service during the initial stages of purchase or consumption.
• Hence,during the initial consumption phase,if the market price of any good or service changes by a certain proportion,then consumer demand for that product or service would also change in significant or considerable proportion.
• However,as the rational consumer or buyer increases its consumption level of any good or service as its market price decreases progressively,he or she becomes increasingly insensitive or unresponsive towards the change or further decrease in its market price.
• This phenomenon can be conceptually attributed to the law of diminishing marginal utility of any normal good or service which evidently advocates that as the individual consumer or buyer consumes more of any particular good or service,the additional or incremental consumer satisfaction or utility obtained from 1 more unit purchase of that particular good or services decreases progressively.In other words,the marginal utility of the consumer or buyers falls increasingly as the consumption level of any good or services increases.
• Hence,the market value of any product or service also declines as the consumption level of any good or services increases thereby making the consumers or buyers increasingly unresponsive or non reactive as its market price decreases especially towards the later or subsequent stages of consumption or purchase.