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Using the Point method on a straight-line demand curve AB, elasticity at point P is given by:
APB / PA — i.e. (lower segment) / (upper segment)
BPA / PB — i.e. (upper segment) / (lower segment)
C(PA + PB) / 2
DPA × PB
Answer & Solution
Correct answer: A. PB / PA — i.e. (lower segment) / (upper segment)
1. The Point method (geometric method) measures Ep on a particular point on the demand curve.
2. Formula: Ep at point P = lower segment / upper segment = PB / PA.
3. At the midpoint Ep = 1; nearer the bottom Ep < 1, nearer the top Ep > 1.
_Source: ICMAI BoS CMA Foundation Paper 4 (Business Economics & Management), Module 1 §1.3 (Theory of Demand) + §Elasticity of Demand, p. 33-46_
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