Solution:

Point Elasticity of Demand:

• When there is minor percentage change in price & demand then point elasticity of demand method is useful for the economist.

• Price elasticity of demand can also be measured with the help of what is known as the ―Point Method.

• According to this method , elasticity of demand on each point of a demand curve shall be different, and can be measured with the help of the following formula.

• Elasticity at different point of a straight line demand curve by different points use the above formula. We can calculate the elasticity of demand and at any point on a straight line demand curve.

• It shall be less than unity in the lower segment and more than unity in the upper segment of the curve.

• It is equal to unity at the middle point of the curve AB less than unity in the lower segment and more than unity in the upper segment.

• It is clear from the above diagram that AB is the straight line demand curve. Let us take price P as the middle point of the demand curve AB.

Now, E at point,

$\mathrm{P}=\overline{\mathrm{PA}}=1 \quad$ To illustrate the same point,

(For PB= PA)

Let us assume $A B$ to represent $6 \mathrm{~cm}$. then the middle point of $A B$, $P B$ will be equal to $3 \mathrm{~cm}$ and PA will be equal to $3 \mathrm{~cm} \\$. E at point, $$ { }^{r-} \quad \frac{P B}{P A}=\frac{3 \mathrm{~cm}}{3 \mathrm{~cm}}=1 \ $$

Let us take a price $\mathrm{pl}$ at the point higher than the middle point of the demand curve,

$\mathrm{AB}$.

$$ \mathrm{P}_{1}=\frac{\mathrm{P}_{1} \mathrm{~B}}{\mathrm{P}_{1} \mathrm{~A}}=\text { More than } 1(\mathrm{PlB}\gt\mathrm{P} 1 \mathrm{~A}) $$

Using the numerical example of $A B$ being equal to $6 \mathrm{~cm}$; then,

$$ \text { E at point }{ }_{1},-\frac{P_{1} B}{\mathrm{PA}_{1}}=\overline{2 \mathrm{~cm}}=2 \text { more than } 1 $$

At a price lower than the middle point of the demand curve (P2) elasticity will be less unity as far instance.

E at point, $\quad \frac{\mathrm{P}}{2}=\frac{\mathrm{P}_{2} \mathrm{~B}}{\mathrm{P}_{1} \mathrm{~B}}= \\ $ Less than, $ 1(\mathrm{P} 2 \mathrm{~B}\lt\mathrm{P} 2 \mathrm{~A}) \\ $

If, $ \mathrm{P} 2 \mathrm{~B}$ is $2 \mathrm{c}$, and $\mathrm{P} 2 \mathrm{~A}$ is $4 \mathrm{~cm} \\ $; than

E at point, $$ \mathrm{P}_{2}=\frac{\mathrm{P}_{2} \mathrm{~B}}{\underset{2}{\mathrm{~A}}}=\frac{2 \mathrm{~cm}}{4 \mathrm{~cm}} \quad 0.5\ Less\ than\ 1 . $$