Constant unit elasticity | Elasticity | Microeconomics | Khan Academy

TL;DR

This video explains how to create a demand curve with a constant elasticity of demand of 1.

Transcript

We've already talked about linear demand functions that actually have changing price elasticity as we go down the curve. And we've shown the extremes. We've shown things that are perfectly inelastic and things that are perfectly elastic. What I want to do in this video-- and it'll be a quick little video-- is think about can we construct a demand c... Read More

Key Insights

• 😥 Demand curves can have varying elasticity values at different points along the curve.
• 🟰 A demand curve with a constant elasticity of demand of 1 has equal percentage changes in price and quantity demanded.
• 💠 The shape of the demand curve with constant elasticity starts steep and becomes flatter as price decreases and quantity increases.

Questions & Answers

Q: How can a demand curve have a constant elasticity of demand?

By constructing a demand curve with a constant elasticity of demand, the absolute value of the elasticity is equal to 1 at all prices and quantities. This means that a 1% change in price will result in a 1% change in quantity demanded, and vice versa.

Q: What does the shape of the demand curve with constant elasticity look like?

The demand curve with constant elasticity starts with a steep slope at higher prices and lower quantities, indicating a high responsiveness to price changes. As the price decreases and quantity increases, the slope of the curve becomes flatter, suggesting a lower responsiveness to price changes.

Q: How does the demand curve change at different price and quantity levels?

At higher prices and lower quantities, a small change in price corresponds to a large change in quantity demanded. As the price decreases and quantity increases, the demand curve becomes less steep, indicating that larger price changes are required to elicit the same percentage change in quantity demanded.

Q: What impact does constant elasticity have on the demand curve?

The constant elasticity of demand ensures that the demand curve maintains a consistent responsiveness to price changes throughout its entire length. This allows for a better understanding of the relationship between price and quantity demanded.

Summary & Key Takeaways

• The video discusses the concept of constructing a demand curve with a constant elasticity of demand.

• The goal is to create a curve where the absolute value of the elasticity of demand is equal to 1 at all points.

• The curve is drawn with a steep slope at higher prices and lower quantities, and a flatter slope at lower prices and higher quantities.