A Level Economics (9708)•9708/12/M/J/23
Explanation
Equal areas imply constant total revenue, yielding unit elastic demand
Steps:
- Equal areas OPMQ and PMQ mean revenue loss (P1 - P2) Q1 equals gain P2 (Q2 - Q1).
- With P2 = P1/2, substitute to get (P1/2) Q1 = (P1/2) (Q2 - Q1), so Q2 = 2 Q1.
- Arc %ΔQ = (Q2 - Q1)/((Q1 + Q2)/2) = Q1/(1.5 Q1) = 2/3.
- Arc %ΔP = (P2 - P1)/((P1 + P2)/2) = (-0.5 P1)/(0.75 P1) = -2/3; PED = (2/3)/(-2/3) = -1.
Why A is correct:
- PED = -1 when total revenue unchanged, as arc formula shows equal-magnitude % changes for linear demand.
Why the others are wrong:
- B: -0.5 implies smaller %ΔQ (1/3), so revenue falls.
- C: 0 implies no ΔQ, revenue halves.
- D: Infinity implies perfectly elastic demand, flat curve with infinite ΔQ.
Final answer: A
Topic: Price elasticity, income elasticity and cross elasticity of demand
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