Introduction

When two demand curves intersect, it means that the quantity demanded by consumers is the same at a given price. However, the price elasticity of demand may differ between the two demand curves at the point of intersection. Price elasticity of demand measures the responsiveness of quantity demanded to a change in price. If a demand curve is more elastic, a small change in price will result in a relatively larger change in quantity demanded. On the other hand, if a demand curve is more inelastic, a change in price will have a relatively smaller impact on quantity demanded.

Explanation

1. Definition of price elasticity of demand
- Price elasticity of demand is a measure of how sensitive the quantity demanded of a good is to changes in its price.
- It is calculated as the percentage change in quantity demanded divided by the percentage change in price.

2. Factors affecting price elasticity of demand
- The availability of substitutes: If there are many substitutes for a product, consumers can easily switch to alternatives if the price increases, making the demand more elastic.
- Necessity vs. luxury goods: Necessities tend to have a more inelastic demand as consumers are willing to pay higher prices for essential items.
- Time period: In the short run, demand tends to be more inelastic as consumers may have limited options to adjust their consumption patterns. In the long run, demand becomes more elastic as consumers have more flexibility.

3. Determining the price elasticity of demand at the point of intersection
- The price elasticity of demand at the point of intersection will depend on the steepness of the demand curves.
- If one demand curve is steeper (more vertical) than the other at the point of intersection, it indicates a more inelastic demand.
- If one demand curve is flatter (more horizontal) than the other at the point of intersection, it indicates a more elastic demand.

4. Example
- Let's consider two demand curves: D1 and D2, intersecting at point A.
- At point A, the quantity demanded is the same for both demand curves.
- If D1 is steeper (more vertical) than D2 at point A, it implies that D1 has a higher price elasticity of demand.
- Conversely, if D2 is flatter (more horizontal) than D1 at point A, it implies that D2 has a higher price elasticity of demand.

Conclusion

When two demand curves intersect, the one with a higher price elasticity of demand at the point of intersection will be determined by the steepness of the curves. A steeper demand curve indicates a more inelastic demand, while a flatter demand curve indicates a more elastic demand. The price elasticity of demand helps in understanding how changes in price affect the quantity demanded, and it is influenced by factors such as the availability of substitutes, the nature of the good, and the time period under consideration.