Question
Define price elasticity of demand. Explain its various degrees. Use diagrams.
✓
Answer
Price elasticity of demand is the degree of responsiveness of the quantity demanded of a good to a change in its price.
There are five degrees of price elasticity of demand which are given as:
There are five degrees of price elasticity of demand which are given as:
- Perfectly Elastic Demand $(\text{e}_\text{D}=\infty)$: When the demand of a commodity rises or falls to any extent at the prevailing price, it is said to be perfectly elastic demand. Here coefficient of elasticity of demand = ∞ (infinity). PD denotes perfectly elastic demand curve, parallel to the OX axis.
- Perfectly Inelastic Demand (eD = 0): When the demand of a commodity does not change at all irrespective of any change in its price, it is said to be perfectly inelastic demand. Here coefficient of elasticity of demand = 0 (zero).
- Unit Elastic Demand (eD = 1): When percentage change in the demand of a commodity is equal to the percentage change in its price, it is said to be unit elastic demand. Here coefficient of elasticity of demand = 1.
- More Elastic Demand (eD > 1): When percentage change in demand of a commodity is more than the percentage change in its price, it is called greater than unitary elastic demand. Here coefficient of elasticity of demand > 1.
- Less than Unitary Elastic Demand (eD < 1): When percentage change in demand of a commodity is less than the percentage change in its price, it is called less than unitary elastic demand or less elastic demand. Here coefficient of elasticity of demand < 1.
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