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Why is the demand curve with constant unitary elasticity concave

Chapter 5, Problem 3

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QUESTION:

Why is the demand curve with constant unitary elasticity concave?

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QUESTION:

Why is the demand curve with constant unitary elasticity concave?

ANSWER:

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The demand curve with constant unitary elasticity is concave due to the principle of diminishing marginal utility and the equal responsiveness of consumers to price changes.

Diminishing marginal utility suggests that as consumers consume more of a good or service, the additional satisfaction or utility derived from each additional unit diminishes. In other words, the more you have of something, the less satisfaction you derive from each additional unit. This concept is a fundamental principle in economics.

Consumers are equally responsive to price changes across all price levels when the demand curve exhibits constant unitary elasticity. In other words, the percentage change in quantity demanded always equals the percentage change in price. This typically occurs in markets where consumers have a wide range of substitute products. If the price of one product increases, consumers can easily switch to a substitute with a similar utility but a lower price.

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