Elasticity of Demand

Elasticity of Demand

Price elasticity of demand measures the responsiveness of quantity demanded of a good (or service) to the change in the price of the good. It is expressed as the ratio of the percentage change in quantity demanded to percentage change in the commodity’s own price.

\(E_d = \cfrac{\text{Percentage in quantity demanded}}{\text{Percentage change in price}}\)

Types of Price Elasticity of Demand

Basically, there are five degrees or types of price elasticity of demand.

a) Elastic Demand:

Demand for a good is price elastic if a given percentage change in price causes a greater percentage change in quantity demanded. The demand curve will exhibit a gentle slope.

b) Inelastic Demand:

Demand for a commodity is price inelastic if a given percentage change in price causes a lesser percentage change in quantity demanded. The demand curve will exhibit a steep slope.

c) Unit Elastic Demand:

Demand for a commodity is unit price elastic if a given percentage change in price causes an equal percentage change in quantity demanded.

d) Perfectly Elastic Demand:

This is the case when consumers will not buy the commodity at all for any change (increase or decrease) in price. Thus, the demand curve is horizontal.

e) Perfectly Inelastic Demand:

The demand for a commodity is perfectly inelastic if the quantity demanded remains unchanged whatever the change (increase or decrease) in price. The demand curve is vertical.

Range of Elasticity Coefficients

Types	Price Elasticity of Demand Coefficient (\(E_d\))
Elastic	\(1 < E_d < \infty\)
Inelastic	\(0 < E_d < 1\)
Unit elastic	\(E_d =1\)
Perfectly elastic	\(E_d = \infty\)
Perfectly inelastic	\(E_d = 0\)