I understand that Price Elasticity of Demand is the sensitivity of quantity demanded related to change in price. And the formula is simply the percent change of demand by percent change of price.

But I am confused when this principle is plotted on the demand curve as appeared below

[https://mk0iejdv97elgku0ls15.kinstacdn.com/wp-content/uploads/2011/07/PED1.jpg](https://mk0iejdv97elgku0ls15.kinstacdn.com/wp-content/uploads/2011/07/PED1.jpg)

I was trying to make sense of it but ended up seeing inelastic on the top and elastic on the bottom of the curve because as price increases and quantity decreased, PED should come closer to < 1, isn’t it?

Or maybe I just misunderstood the purpose of this graph. Could someone enlighten me? Thank you.

In: Economics

The slope of the demand curve tells you the change in demand for a change in price. This is related, but not identical, to the *percent* change in demand for a *percent* change in price (see below for an illustration). A demand curve with constant slope (as pictured in the figure) will generally change elasticity as it goes. Instead economists will tend to draw demand curves that could plausibly have a constant elasticity (steeper at low quantities and flatter at high quantities).

Suppose the slope of the pictured demand curve is -1 and the intercept is 10. Consider moving from a price of 9 to a price of 8. This will move demand from 1 to 2. I’ll ignore the direction of the changes (elasticity of demand is technically always negative, but it’s presented as positive in the figure):

Percent change in demand: (2-1)/1 = 1

Percent change in price: (9-8)/9 = 1/9

This means that the elasticity of demand at that point is 1/(1/9)=9.

Now consider moving from a price of 2 to a price of 1. This will move demand from 8 to 9

Percent change in demand: (9-8)/8 = 1/8

Percent change in price: (2-1)/2 = 1/2

This means that the elasticity of demand at that point is (1/8)/(1/2)=1/4

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