How to Measure Point Elasticity of Demand in Demand Curve? – Explained

Point elasticity of demand measures the elasticity of a particular point on the demand curve. For a linear demand curve, point elasticity of demand is defined as:

We can establish this relationship graphically. Suppose, AB is the linear demand curve, OP₀ is the initial price and the corresponding output level is OE. Now, if the price drops to zero, the quantity demanded at that price would be OB. We are interested in finding out the elasticity of demand at point D. In this case,

P (initial price) = OP₀

Q_d (initial quantity demanded) = OE

∆P (change in price) = – OP₀ (-ve sign indicates a fall in price)

∆Q_d (change in quantity demanded) = OB – OE = EB (it is positive because the demand increases)

Hence, as we move downward along the straight-line demand curve AB, the value of the ‘lower segment’ reduces and the value of the ‘upper segment’ increases. As a result, the value of E_d diminishes with the increase in the value of numerator and a decrease in the value of denominator.

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At the middle point of the demand curve, E_d = 1 (unity). At any point between the mid-point and the point joining the vertical axis, E_d < 1 and on all the points between the mid-point and the point where the demand curve touches the horizontal axis, E_d > 1.

The value of E_d is zero at the point where the demand curve touches the horizontal axis and it becomes infinity (i.e., E_d = ∞) at the point where the demand curve touches the vertical axis (see panel (a) of figure 4.10).