DEGREES OF PRICE ELASTICITY OF DEMAND

A small fall in the price of a product may lead to a considerable increase in the quantity demanded, but sometimes even a considerable fall in price may not lead to any increase in demand. The degree of responsiveness of demand to small change in price differs from commodity to commodity. Degrees of elasticity of demand are classified into four types:-

Unit Elasticity:

Demand is unit elastic when percentage change in quantity demand and percentage in price are equal. In case of unit elastic demand the demand curve is a Rectangular Hyperbola. In practice it is difficult to find such commodities as have a demand curve whose elasticity is unit throughout.

 Relatively inelastic demand (ed < 1):

 Demand is said to be relatively inelastic or less than unity when proportionate change in demand  is  less than proportionate change in price. In such cases the slope of demand curve falls rapidly.

 Perfectly inelastic demand (ed = 0):

When there is no change in demand as a result of increase or decrease in price then the demand is perfectly inelastic. The demand curve is vertical on OX axis

Perfectly elastic demand (ed = oc):
The demand is perfectly elastic when even a small change in price cause an infinite large change in amount demanded. A small rise in price on the part of a seller reduces the demand to zero. In such cases the demand curve is parallel to OX axis.