2.13:
Degrees of Elasticity of Demand and the Demand Graph
Demand curves visually represent the elasticity of goods and services.
Perfectly elastic goods have a horizontal demand curve, indicating that any price increase leads to a complete loss of demand.
On the other hand, perfectly inelastic goods display a vertical demand curve, where the quantity demanded remains constant despite price changes.
However, these extreme cases are largely theoretical. Most goods and services fall between these two extremes.
Next is relatively elastic goods. They have flatter demand curves. This is typical for non-essential items, such as a movie ticket, where consumers can easily adjust their consumption based on price changes.
Then comes relatively inelastic goods. They have steeper demand curves. Necessities like gasoline fall into this category because consumers need them regardless of price changes, leading to minimal changes in quantity demanded.
Meanwhile, unitary elastic goods exhibit a demand curve resembling a rectangular hyperbola. Here, the percentage change in quantity demanded precisely matches the percentage change in price.
In the real world, businesses shape their pricing strategies by understanding the elasticities of their products.
2.13 Degrees of Elasticity of Demand and the Demand Graph
Demand curves visually represent how consumers respond to changes in prices. The elasticity of demand determines the steepness of the curve, with higher elasticity resulting in a flatter curve and lower elasticity leading to a steeper curve.
Perfectly Elastic Demand: Represented by a horizontal line, indicating that any change in price results in an infinite change in quantity demanded. Although this is a theoretical extreme, it signifies a scenario where consumers are extremely sensitive to price changes.
Relatively Elastic Demand: Demand curves for relatively elastic goods are flatter, indicating that the percentage change in quantity demanded is greater than the percentage change in price. This category typically includes luxury goods and non-essential items, where consumers are more responsive to changes in price.
Unitary Elastic Demand: Represented by a demand curve that forms an intermediate slope, indicating that the percentage change in quantity demanded equals the percentage change in price. This suggests a proportional response of quantity demanded to price changes.
Relatively Inelastic Demand: Demand curves for relatively inelastic goods are steeper, indicating that the percentage change in quantity demanded is less than the percentage change in price. This category encompasses necessities and everyday items, where consumers are less sensitive to price changes.
Perfectly Inelastic Demand: Represented by a vertical line, signifying that quantity demanded remains constant regardless of price changes. This is often seen with essential goods like medicines, where consumers are willing to pay any price for the product.