Geometric measure of elasticity of demand

Indian Economy glossary

Also called: Lower segment by upper segment method · Topic: Consumer Behaviour, Demand and Elasticity · NCERT: Class 12, Ch 2 "Theory of Consumer Behaviour"

Meaning

The geometric measure finds price elasticity at any point on a straight-line demand curve by comparing lengths. Suppose the line meets the quantity axis at A and the price axis at B. At any point D on the line:

eD = lower segment ÷ upper segment = DA/DB

Here the lower segment is the part of the line below D (towards the quantity axis). The upper segment is the part above D (towards the price axis). The result is proved using similar triangles.

Example

  • At A, the lower segment is zero, so eD = 0.
  • At B, the upper segment is zero, so eD is infinite.
  • At the exact midpoint, the two segments are equal, so eD = 1.
  • At a point where the lower segment is twice the upper segment, eD = 2, so demand is elastic there.

Don't confuse with

  • Slope method: the slope is the same everywhere on the line. The segment ratio, and so the elasticity, changes at every point.

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