Types of elasticity

perfect inelastic

demand curve is vertical, If price elasticity equals **zero**, then a change in price will have no effect on quantity demanded - demand is said to be **perfectly inelastic** (Ed=0). Insulin for a diabetic, if price increases, there is no change in quantity demanded - the law of demand in this case stops working.

perfectly elastic

horizontal demand curve, price elasticity would equal infinity (Ed=∞), example of this would be a good with a perfect substitute - if the price of one good increases by one cent, consumers would stop buying the good and switch to the substitute.

inelastic demand

** When the coefficient of PED < 1, then a rise in price will increase total revenue. For example, if PED = -0.3, this means demand is price inelastic. inelastic products e.g. energy can’t put their prices up forever because of government regulations, e.g. apple can’t put their prices up forever because elasticity has a breaking point practically people would stop buying.

elastic demand

** When the coefficient of PED > 1, then a price fall will increase total revenue. For example, if PED = -2.5, this means demand is price elastic. if you have an elastic demand you won’t drop your prices because you already have low profit margins so by dropping prices your profit margin would get even lower despite the increase in revenue.

demand is price unitary elastic

** When the coefficient of PED = 1, then demand is unitary elastic. This means a price change will leave total revenue unchanged. consumers are less sensitive to price changes.