Types of elasticity of demand

perfectly inelastic

• Ed=0

• Demand curve is vertical.

• A change in price has no effect on quantity demanded.

• Example: Insulin for diabetics—needed regardless of price.

• The law of demand does not apply in this case.

perfectly elastic

• Ed= infinity

• Demand curve is horizontal.

• A small price increase eliminates all demand.

• Occurs when a perfect substitute is available.

• Example: If two identical products exist and one increases in price by a cent, consumers switch to the cheaper option.

inelastic

• Ed less than one

• A price increase leads to higher total revenue.

• Example: If PED = -0.3, demand is price inelastic.

• Essential goods like energy have inelastic demand, but government regulations prevent endless price increases.

• Luxury brands like Apple face a limit—at some point, high prices will cause consumers to stop buying.

elastic

• Ed greater than one

• A price decrease leads to higher total revenue.

• Example: If PED = -2.5, demand is highly elastic.

• Businesses with elastic demand avoid lowering prices too much since they already operate on low profit margins.

• Dropping prices further may not generate enough sales to offset profit losses per unit.

unitary elastic

• Ed=1

• A price change does not affect total revenue.

• 45 degree curve

• Consumers are somewhat sensitive to price changes but maintain consistent overall spending on the good.