Elasticity - 1

In the previous section, supply and demand curves were drawn as straight lines. This is a simplification, as we are assuming that the rate of change of demand or supply is the same for all prices in the market.

Many goods have demand curves that look like this. At some prices, a small change in price may cause a large change in the quantity demanded. This shown in the diagram as the movement from Pe to Pe1; a small change in price which causes an even larger percentage decrease in quantity demanded (from Qe to Qe1.