There are two extreme cases of elasticity: when elasticity equals zero and when it is infinite. A third case is that of constant unitary elasticity. We will describe each case. Infinite elasticity or perfect elasticity refers to the extreme case where either the quantity demanded Qd or supplied Qs changes by an infinite amount in response to any change in price at all. In both cases, the supply and the demand curve are horizontal as shown in Figure 1. While perfectly elastic supply curves are unrealistic, goods with readily available inputs and whose production can be easily expanded will feature highly elastic supply curves.
Examples include pizza, bread, books and pencils. Similarly, perfectly elastic demand is an extreme example. Examples of such goods are Caribbean cruises and sports vehicles. Zero elasticity or perfect inelasticity , as depicted in Figure 2 refers to the extreme case in which a percentage change in price, no matter how large, results in zero change in quantity.
While a perfectly inelastic supply is an extreme example, goods with limited supply of inputs are likely to feature highly inelastic supply curves. Examples include diamond rings or housing in prime locations such as apartments facing Central Park in New York City. Similarly, while perfectly inelastic demand is an extreme case, necessities with no close substitutes are likely to have highly inelastic demand curves.
This is the case of life-saving drugs and gasoline. Constant unitary elasticity , in either a supply or demand curve, occurs when a price change of one percent results in a quantity change of one percent. Figure 3 shows a demand curve with constant unit elasticity. Determinants of elasticity example. Practice: Price Elasticity of Demand and its Determinants. Perfect inelasticity and perfect elasticity of demand. Constant unit elasticity. Total revenue and elasticity.
More on total revenue and elasticity. Elasticity and strange percent changes. Price elasticity of demand and price elasticity of supply. It is important to note that both elastic and inelastic are relative terms, as shown in Figure 1, below. As one moves down the demand curve from top left to bottom right, the measured elasticity is much greater than one very elastic , then just greater than one somewhat elastic , then equal to one unitary elastic, then less than one somewhat inelastic , and finally much less than one very inelastic.
Figure 1. Variations in Elasticity. As you saw earlier, price elasticity of demand ranges from more than 1 at high prices and less than 1 at low prices. Measured elasticities decreases as one moves down the demand curve from left to right. We will describe each case. A perfectly or infinitely elastic demand curve refers to the extreme case in which the quantity demanded Qd increases by an infinite amount in response to any decrease in price at all.
Similarly, quantity demanded drops to zero for any increase in the price. A perfectly elastic demand curve is horizontal, as shown in Figure 2, below. Say, for example, if the price of cruises to the Caribbean decreased, everyone would buy tickets i.
Figure 2. Infinite Elasticity. This shows a perfectly elastic demand curve. The horizontal line shows that an infinite quantity will be demanded at a specific price. The quantity demanded is extremely responsive to price changes, moving from zero for prices close to P to infinite when prices reach P.
While perfectly inelastic demand is an extreme case, necessities with no close substitutes are likely to have highly inelastic demand curves.
This is the case with life-saving prescription drugs, for example. Consider a person with kidney failure who needs insulin to stay alive.
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