Price elasticity of demand

The responsiveness or sensitivity of demand to a given change in the price of a commodity is called Price elasticity of demand.

The price elasticity of demand can be classified as follows:

1.      Perfectly Elastic Demand:  When a small fall in the price of a commodity results in infinite quantity demanded or a small rise in price results in zero demand, it is a case of perfectly elastic Demand.  In this type of elasticity of demand the demand curve is parallel to the X axis as is shown in the diagram. The Price elasticity of demand is equal to infinity.

2.     Perfectly Inelastic Demand:  In this type of elasticity of demand, whatever may be the change in the price of a commodity; the demand remains constant and hence the demand curve is parallel to the Y axis.  The Price elasticity of demand is equal to zero.

The above mentioned cases rarely occur in the real world. They are just studied as a part of theory.

3.     Relatively Elastic demand:  When a small change in price results in more than proportionate change in the quantity demanded, it is called relatively elastic demand.  For instance, a 5% fall in the price of the commodity results in 10% rise in the demand for the commodity; it is a case of relatively elastic demand. The price elasticity of demand is greater than one.

4.     Relatively Inelastic demand:  when a big change in the price of a commodity is followed by a less than proportionate change in the quantity demanded, it is called relatively inelastic demand.  For instance a 10% fall in the price of a commodity results in 5% rise in the quantity demanded it is a case of relatively inelastic demand.  The price elasticity of demand is less than one.

5.     Unitary Elastic demand:  when price of a commodity and the quantity demanded change by the same proportion it is called unitary elastic demand.  For instance when Price of a commodity falls by 10% and the quantity demanded rises by 10% it is a case of unitary Elastic demand.  Therefore the price elasticity of demand is equal to 1.