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Category:

Elasticity

# 👑 Economics Revision Notes

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Unit elasticity

If the PED for a product is equal to 1 (ignoring the minus sign), then demand has unitary price elasticity: that is, the percentage change in the quantity demanded is proportional to the change in the price.

Price and quantity change in exactly the same proportion. Any rise in price will be exactly offset by a fall in quantity, leaving total consumer expenditure unchanged

Perfectly inelastic demand

If the PED for a product is equal to 0, then demand is perfectly price inelastic: that is, a change in price has no impact on the quantity demanded. This suggests that there is absolutely no substitute for such a product, so suppliers can charge whatever price they like.

Irrespective of the price charged, consumers are willing and able to buy the same amount.

Infinitely elastic demand

If the PED for a product is equal to infinity (∞) then demand is perfectly price elastic: that is, a change in price leads to zero quantity demanded. This suggests that customers switch to buying other substitute products if suppliers raise their price.

At a price of \$10 per unit, consumers are not prepared to buy any of this product; however, if price falls to \$9, they will buy all that is available. The relative change in quantity demanded here is infinite, since the original demand was zero.

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