I have been getting a ton of great questions lately - I apologize to the students who have yet to hear back from me. One question I particularly liked was as follows:
For me (a visual person), the best way to tackle a question like this is to draw two supply and demand graphs. On the first, draw a very inelastic linear demand curve - something close to a vertical line. On the second, draw a very elastic linear demand curve - something close to a horizontal line. Then on each graph, draw an initial supply curve and a second shifted-out supply curve.
You will note in the first case (inelastic linear demand), that the price has fallen a great deal but quantity has changed only a little.
In the second case (elastic), the price falls very little, but quantity changes a lot.
Since we are looking for the case where the price falls only a little, we would say the demand curve is elastic.
Note the above analysis is a little misleading, since I am using the slope of the demand curve and not the elasticity - and as Eclectecon has shown the two are not identical. But that is a small detail which can be ignored here.
If the price of watermelons fell only a little bit when supply of watermelons increased a lot what could you conclude about the elasticity of demand for watermelons?You can determine this from the equation for price elasticity of demand, but I am a very visual person, so I'll take a different approach. Both lead to the same answer.
For me (a visual person), the best way to tackle a question like this is to draw two supply and demand graphs. On the first, draw a very inelastic linear demand curve - something close to a vertical line. On the second, draw a very elastic linear demand curve - something close to a horizontal line. Then on each graph, draw an initial supply curve and a second shifted-out supply curve.
You will note in the first case (inelastic linear demand), that the price has fallen a great deal but quantity has changed only a little.
In the second case (elastic), the price falls very little, but quantity changes a lot.
Since we are looking for the case where the price falls only a little, we would say the demand curve is elastic.
Note the above analysis is a little misleading, since I am using the slope of the demand curve and not the elasticity - and as Eclectecon has shown the two are not identical. But that is a small detail which can be ignored here.
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