Demand Curves According to Their Elasticity
The shape of a demand curve affects its elasticity. When the demand curve is vertical, demand is perfectly inelastic. When it is horizontal, the demand is perfectly elastic. Elastic demand tends to have a flatter curve, while inelastic demand has a steeper slope. Let’s explore each of these examples.
Perfectly Inelastic Demand Curve
In a perfectly inelastic demand curve, the quantity demanded does not respond to price changes. In the graph, if the price rises from 30 to 60, the quantity demanded remains at 400, meaning it does not change.
Inelastic Demand Curve
In an inelastic demand curve, the elasticity is less than one. Thus, the quantity demanded changes proportionally less than the price. As seen in the graph, an increase in price from 30 to 60 leads to a smaller reduction in the quantity demanded.
Unitary Elastic Demand Curve
When demand elasticity is unitary, the percentage change in quantity demanded matches the percentage change in price, meaning the elasticity is exactly one. In the graph, when the price increases by 50%, rising from 40 to 60, the quantity demanded increases by the same proportion, from 400 to 600.
Elastic Demand Curve
In an elastic demand curve, the elasticity is greater than one. This means that the quantity demanded responds proportionally more than the price change. As shown in the graph, a price increase from 30 to 60 leads to a much larger drop in the quantity demanded.
Perfectly Elastic Demand Curve
In a perfectly elastic demand curve, any change in price leads to an infinite change in quantity demanded. In this case, consumers are willing to buy as much as firms are willing to sell at a price of 40 or lower. However, if the price increases even slightly above 40, demand drops to zero.
Price Elasticity of Demand and Slope
Since price elasticity of demand measures how the quantity demanded responds to price changes, it is closely related to the slope of the demand curve. Empirically, flatter curves tend to have greater elasticity, while steeper curves indicate lower price elasticity of demand.