Price elasticity of two parallel demand curves, Managerial Economics

Assignment Help:

It can be geometrically proved that two elasticity are equal, which is., QB=RD Let's first consider ΔAOB. If we draw a horizontal line from point Q to intersect the vertical axis at point P and an ordinate from Q to M at the horizontal axis, we have 3 triangles- ΔAOB, ΔAPQ and ΔQMB. Note that ΔAOB, ΔAPQ and ΔQMB are right-angles. Thus, all the three triangles are right-angled triangles. As noted above, ratios of their two corresponding sides of similar right-angle triangles are always equal.

Considering only the relevant triangles, ΔAPQ and ΔQMB, we have

BQ/MQ =AQ/AP

Since MQ = OP, by substituting OP for QM in ratio BQ/MQ, we get

BQ/OP = AQ/AP

Therefore, BQ/AQ =OP/AP = Elasticity of demand curve AB, at point Q or at price OP.

We can similarly prove that

RD/RA = OP/PA = Elasticity of demand curve AD, at point R or at price OP.

 

Therefore it is proved, that at price OP,

QB/QA = RD/RA = PO/PA

It is hence proved that two demand curves with different slopes have the same elasticity at a given price.

317_Price Elasticity of two parallel demand curves.png

Price Elasticity of two parallel demand curves


Related Discussions:- Price elasticity of two parallel demand curves

Market demand and consumers surplus, Market demand and consumers surplus ...

Market demand and consumers surplus Suppose that the market price of a cup of coffee is K£4 but the consumer was willing to pay £9 for the first unit, £8 for the second, £7 fo

Quality controls - importance of demand forecast, Quality and Quantity Cont...

Quality and Quantity Controls: Demand forecasting is a necessary and valuable instrument in the control of management of an organisation to provide finished goods of correct quant

Frugal economy, The Frugal Economy In the Frugal economy, households a...

The Frugal Economy In the Frugal economy, households and firms look to the future, and as a result undertake both Saving and Investment. SAVING Saving is income no

Limitations of uneven distribution of income and wealth, Limitations of Une...

Limitations of Uneven Distribution of Income and Wealth Unlike the historical experience of the now developed countries, the rich in contemporary Third World Countries are not

What is the reasons for shift in demand curve, Reasons for Shift in Demand ...

Reasons for Shift in Demand Curve Shifts in a price-demand curve may occur due to the change in one or more of other determinants of demand. Consider, for illustration, decreas

Advantages of progressive tax, Advantages a.           It is more equi...

Advantages a.           It is more equitable.  The broader shoulders are asked to carry the heavier burden. b.          It satisfies the canon of productivity as it yields

Vanda-Laye Corporation, You are the new owner of Vanda-Laye Corporation. Yo...

You are the new owner of Vanda-Laye Corporation. You are interested in your company''s cost and revenue relationships as well as its future pricing strategies. Tasks: Analyze how

Firms with market power, A firm with market power has estimated the followi...

A firm with market power has estimated the following demand function for its product: Q = 12,000 – 4,000 P where P = price per unit and Q = quantity demanded per year. The firm’s t

What is the expected profit, The Barcelona Football Club is considering the...

The Barcelona Football Club is considering the signing of a player of international fame. The problem is that the player has a reputation for having a weak knee. The probability th

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd