Q.How do you measure price elasticity of demand through point method ?

The point method measures price elasticity of demand at a particular point on a straight-line demand curve as (lower segment) divided by (upper segment), the two parts into which the point divides the curve. This makes elasticity equal to one at the midpoint, more than one above it, less than one below it, infinity at the top (Y-axis) end and zero at the bottom (X-axis) end.

Meaning

Price elasticity of demand is the degree of responsiveness of quantity demanded to a change in price. The point method (also called the geometric method) finds elasticity at a single point on a demand curve, which is useful when the price change is very small.

The point method

Take a straight-line demand curve that meets the Y-axis at the top and the X-axis at the bottom. Choose any point on it. That point divides the demand curve into two parts:

• the lower segment, measured from the chosen point down to the point where the curve meets the X-axis, and
• the upper segment, measured from the chosen point up to the point where the curve meets the Y-axis.

The formula is:

Elasticity at a point = Lower segment of the demand curve / Upper segment of the demand curve

Results at different points

• At the midpoint of the demand curve, the lower and upper segments are equal, so elasticity = 1 (unitary elastic).
• At any point above the midpoint, the lower segment is longer than the upper, so elasticity is greater than 1 (elastic).
• At any point below the midpoint, the lower segment is shorter than the upper, so elasticity is less than 1 (inelastic). …