Types of PriceElasticity of Demand

The elasticity of demand of a commodity can be defined as a measure of responsiveness of quantity demanded of a good to changes in factors affecting demand such as own price, income or prices of other related goods. Price elasticity of demand is the measure of responsiveness of the quantity demanded of a commodity to changes in its own price. It is also referred to as own price elasticity. It abbreviated as PED/ED. There are five types of price elasticity of demand.

  • Perfectly elastic demand. Demand is said to be perfectly elastic when the consumers are willing to buy an amount of a commodity at a given price, but non at a slightly higher price. In this case elasticity of demand is equally to infinity. The will be a horizontal straight line as illustrated in Figure 2.28. This is a case of a commodity in a perfectly competitive market. Where an increase in price may lead to a loss of all customers.

Perfect Elastic Demand

  • Elastic demand. Demand is said to be price elastic when a change in price causes more than proportionate change in quantity demanded. In this case the value of elasticity of demand is greater than 1 and the demand curve will be gently sloped as indicated in Figure 2.29. This implies that if prices increase from P1 to P2 the quantity demanded falls in greater proportion from Q1 to Q2 and vice versa. This is a case of luxury commodity which consumes can do without or a case of a substitute.

Elastic Demand

  • Unit elastic demand. Demand is said to unit elastic if changes in price cause proportionate change in quantity demanded. If price increase quantity falls in the same proportion and vice versa. ED = 1 and the demand curve will be rectangular hyperbola as illustrated in Figure 2.30. This is a case of a good that lies between a luxury and necessity such as soap opera film or movie

Unit Elastic Demand

  • Inelastic demand. Demand is said to be price inelastic if changes in price causes less than proportionate change in quantity demanded. If prices increases the quantity falls in less proportion and if the prices falls the quantity demanded increases in less proportion ED < 1 as illustrated in Figure 2.31. This is a case of a good which is a necessity. These are goods which consumers cannot do without but need not be consumed in fixed amount like an absolute necessity such a staple food like ugali and milk. It also applies in the case of habit forming goods like beer and cigarettes

Inelastic demand

  • Perfectly inelastic demand. Demand is said to be perfectly price inelastic if changes in price has no effect on the quantity demand(ED= 0). In this case the demand curve will be vertical straight as illustrated in Figure 2.32. This is a case of a good which is an absolute necessity. A good that consumes cannot do without and have to consume in fixed amounts such as salt.

Perfect Elastic Curve

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