A Level Economics Essay 27: Price Elasticity of Demand

Explain why price elasticity of demand changes along a downward sloping straight-line demand curve.  

The price elasticity of demand (PED) changes along a downward-sloping straight-line demand curve due to varying degrees of responsiveness to price changes. Specifically, the PED is elastic at the upper end of the demand curve and inelastic at the lower end.

At the upper end of the demand curve, where prices are relatively high, the demand tends to be more elastic. This means that a change in price leads to a relatively larger change in quantity demanded. Consumers have more flexibility to adjust their consumption patterns or switch to substitute goods when prices are high. For example, if the price of a luxury handbag increases by 10%, consumers may be more likely to reduce their demand significantly, resulting in a larger percentage decrease in quantity demanded.

Conversely, at the lower end of the demand curve, where prices are relatively low, the demand tends to be more inelastic. This means that a change in price results in a relatively smaller change in quantity demanded. Consumers have fewer alternatives or substitutes available at lower prices and may view the product as a necessity. For instance, if the price of a staple food item like rice increases by 10%, consumers may still continue to purchase it, but the quantity demanded may decrease by a smaller percentage.

In summary, the price elasticity of demand is elastic at the upper end of the demand curve and inelastic at the lower end. This reflects the varying degrees of consumer responsiveness to price changes based on factors such as the availability of substitutes, necessity of the good, and consumer preferences.