IB DP Economics - Unit 2 - Changing PED along a straight-line demand curve (HL only) -Study Notes - New Syllabus

Price Elasticity of Demand (PED)

Changing PED Along a Straight-Line Downward Sloping Demand Curve (HL)

Even when a demand curve is a straight line, the value of PED is not constant. Instead, elasticity changes at different points along the curve.

Key Idea:

PED varies along the demand curve

• At different price and quantity combinations, responsiveness changes.
• The same straight-line curve can have elastic, unit elastic, and inelastic sections.

Explanation of Variation in PED

At the upper part of the demand curve:

• • Price is high, quantity is low.
  • A small change in price leads to a large percentage change in quantity.
  • Demand is elastic (\( \mathrm{PED > 1} \)).

At the midpoint of the demand curve:

• • Percentage change in price equals percentage change in quantity.
  • Demand is unit elastic (\( \mathrm{PED = 1} \)).

At the lower part of the demand curve:

• • Price is low, quantity is high.
  • A change in price leads to a small percentage change in quantity.
  • Demand is inelastic (\( \mathrm{PED < 1} \)).

Special Cases:

At the price-axis intercept:

• • \( \mathrm{PED = \infty} \) (perfectly elastic)

At the quantity-axis intercept:

• • \( \mathrm{PED = 0} \) (perfectly inelastic)

Diagram: Changing PED Along Demand Curve

Economic Logic (HL Insight):

• PED depends on relative percentage changes, not slope.
• Even though slope is constant, elasticity changes because:
  • At high prices → small base quantity → large % change
  • At low prices → large base quantity → small % change