Types of Price Elasticity of Demand

TYPES OF PRICE ELASTICITY OF DEMAND

Perfectly elastic demand: W here no reductio n in price is needed to cause an increase in quantity demanded. This is explained with the help of a diagram.

X axis-quantity demanded

Y axis- price

DD1- demand curve

Explanation: Price elasticity of demand is infinity when a small change in price leads to an infinitely large change in the amount demanded It is perfctly elastic demand..[E=?]

ii. Perfectly in elastic demand: Here a large change in price causes no change in quantity demanded. It is zero elastic demand [E=0]. This is explained with the help of a diagram.

X axis-quantity demanded

Y axis- price

DD1- demand curve

Explanation: The figure shows that even if the price decrease from p to p1 there is no change in the quantity demand. This happens in case of necessities like salt.

Unitary elastic: Where a given proportionate change in price causes an equally proportionate change in quantity demand. This is explained with the help of a diagram.

X axis-quantity demanded

Y axis- price

DD1- demand curve

Explanation: Price elasticity of demand is unity when the change in demand is exactly proportionate to the change in price. [E=1].

Relatively elastic: W here a s mall change in price causes a more than proportionate change in quantity demanded. The price elasticity o f demand is greater than u nity [E >1]. This is explained with the help of a d iagram.

X axis -quantity demanded

Y axis -price

DD -demand curve

Explanation: The figure sho ws that the re is a small decrease in price fro m P to P1, but it has resulted in a large increase in quantity demanded from Q to Q1. It is also known as relatively elastic demand.

v. Relatively inelastic demand: W here a change in price causes a less than proportionate change in quantity d emanded. The price elasticity of demand is lesser than unity [E <1]. This is explained with the help of a diagram.

X axis -quantity demanded

Y axis -price

DD- demand curve

Explanation: The figure shows that there is a large decrease in price fro m P to P1, but it has resulted in only a small increase in quantity demanded from Q to Q1. It is also known as relatively elastic demand.