Types of price elasticity of demand, Managerial Economics

Types of Price Elasticity of demand 

a)    Perfectly inelastic demand

Demand is said to be perfectly inelastic if changes in price have no the quantity demanded so that the demand is infinitely price elastic.  This is the case of an absolute necessity i.e. one which a consumer cannot do without and must have in fixed amount e.g. analysis, insulin etc.

b)         Inelastic demand

This is where changes in price bring about changes in quantity demanded in less proportion so that elasticity is less than one.  This is the case of a necessity or a habit forming commodity e.g. drinks or cigarettes.

c)    Unit Elasticity of demand

Is where changes in price bring about changes in quantity demanded in the same proportion and the elasticity of demand is equal to one or unity.  This is for commodities, which are between a necessity and a luxury, e.g. film going.

d)    Elastic demand

Demand is said to be price elastic if changes in price being about changes in quantity demanded in greater proportion so that elasticity is greater than one.  This is the case of a luxury, i.e. one that can be done without or a commodity with close substitutes.

e)         Perfectly Elastic demand

Demand is perfectly elastic when consumers are prepared to buy all they can obtain at some price and none at an even slightly higher price.

This is the case of perfectly competitive market i.e. where there are many producers producing the same product.  Each of them is too insignificant to increase or reduce the market price.

Posted Date: 11/27/2012 6:34:38 AM | Location : United States







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