Point method

Point method:

We can evaluate the price elasticity of demand at a point on linear demand curve. The formula to find out ep through point method is,

781_point method1.jpg

 

1150_point method2.jpg

For illustration, in figure above, the length of the demand curve AB is 4 cm.

Accurately at the middle point of AB demand curve,

A)  ep at point e:

ep = EB/EA = 2/2  = 1  ∴  ep = 1
         
B) ep at point D = (middle point of EB part of demand curve)

 ep = DB/DA = 1/3 = 0.3 ∴ ep < 1
            
C) ep at point c (middle point of EA part of demand curve)

   ep = CB/CA =  3/1 =  3  ∴ ep > 1
          
D) ep at point B = 0/AB = 0

 (i.e., o by anything is zero, a mathematical principle)    ∴ ep = 0

E) ep at point A = AB/0 = ∞

(That is, anything divided by zero becomes infinity a mathematical principle)
∴ ep =  ∞

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