Descriptions Of Elasticity Values: Perfectly Elastic, (Highly) Elastic, Unitary Elasticity, (Highly) Inelastic, Perfectly Inelastic
Economics notes
Descriptions Of Elasticity Values: Perfectly Elastic, (Highly) Elastic, Unitary Elasticity, (Highly) Inelastic, Perfectly Inelastic
➡️ Perfectly elastic demand means that a small change in price will cause a large change in quantity demanded.
➡️ Highly elastic demand means that a small change in price will cause a very large change in quantity demanded.
➡️ Unitary elasticity means that a change in price will cause an equal change in quantity demanded.
➡️ Highly inelastic demand means that a large change in price will cause only a small change in quantity demanded.
➡️ Perfectly inelastic demand means that no matter how much the price changes, the quantity demanded will remain the same.
What is the difference between perfectly elastic and perfectly inelastic demand?
Perfectly elastic demand refers to a situation where a small change in price leads to an infinite change in quantity demanded. This means that consumers are extremely sensitive to changes in price and will only purchase the good if it is offered at a specific price. On the other hand, perfectly inelastic demand refers to a situation where a change in price has no effect on the quantity demanded. This means that consumers are not sensitive to changes in price and will continue to purchase the good regardless of the price.
How does the concept of unitary elasticity affect pricing decisions?
Unitary elasticity refers to a situation where a change in price leads to an equal percentage change in quantity demanded. This means that the revenue earned by the seller remains constant regardless of the change in price. In this case, pricing decisions become more complex as the seller needs to balance the desire to increase revenue by raising prices with the need to maintain demand by keeping prices low.
What factors influence the elasticity of demand for a good or service?
The elasticity of demand for a good or service is influenced by a number of factors, including the availability of substitutes, the necessity of the good or service, the proportion of income spent on the good or service, and the time period under consideration. Goods or services with close substitutes tend to have more elastic demand, while goods or services that are necessities tend to have more inelastic demand. Additionally, goods or services that represent a large proportion of a consumer's income tend to have more elastic demand, while goods or services that represent a small proportion of a consumer's income tend to have more inelastic demand. Finally, the elasticity of demand may change over time as consumers adjust their behavior and preferences.