What is elasticity of demand in a situation when percentage change in quantity is infinite in response to a finite change in price? Draw a diagram, and support your answer logically.

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Solution

In this situation, elasticity of demand is infinity. Because a finite change in price causes infinite change in quantity demanded.
The diagram shows that even a slightest increase in price would cause the quantity demanded to reduce to zero.
Implying a situation of perfectly elastic demand $(E_{d} = \infty)$ .

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What is elasticity of demand in a situation when percentage change in quantity is infinite in response to a finite change in price? Draw a diagram, and support your answer logically.

In this situation, elasticity of demand is infinity. Because a finite change in price causes infinite change in quantity demanded.The diagram shows that even a slightest increase in price would cause the quantity demanded to reduce to zero.Implying a situation of perfectly elastic demand (Ed=∞).