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CA Foundation · Business Economics · Theory of Demand and Supply

A supply curve that is a straight line passing through the origin (starting at point zero on both axes) has a price elasticity of supply that is:

The elasticity is equal to one at every point. When a straight-line supply curve passes through the origin, quantity is proportional to price, so the slope equals Q/P and the elasticity (slope times P/Q) is exactly one regardless of the point chosen.

  1. AGreater than one at every point on the curve
  2. BLess than one at every point on the curve
  3. CEqual to one at every point on the curveCorrect
  4. DZero at every point on the curve

Explanation

For a linear supply curve through the origin, Q = kP, so the ratio dQ/dP equals Q/P. Elasticity = (dQ/dP) x (P/Q) = 1 at every point. A curve cutting the price axis has elasticity above one; one cutting the quantity axis has elasticity below one.

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