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What is price elasticity of demand? Explain the types of price elasticity of demand.

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Solution

The Price Elasticity of Demand refers to the degree of responsiveness of demand to the change in the price of the commodity.

Types of price Elasticity of Demand:

The following are the main types of price elasticity of demand:

1. Relatively Elastic Demand:

Relatively elastic demand refers to the demand when the proportionate change produced in demand is greater than the proportionate change in price of a product. The numerical value of relatively elastic demand ranges between one to infinity.

2. Relatively Inelastic Demand:

Relatively inelastic demand is one when the percentage change produced in demand is less than the percentage change in the price of a product. The numerical value of relatively elastic demand ranges between zero to one (ep<1).

3. Unitary Elastic Demand:

When the proportionate change in demand produces the same change in the price of the product, the demand is referred as unitary elastic demand. The numerical value for unitary elastic demand is equal to one (ep=1).

4. Perfectly Elastic Demand:

When a small change in price of a product causes a major change in its demand, it is said to be perfectly elastic demand. In perfectly elastic demand, a small rise in price results in fall in demand to zero, while a small fall in price causes increase in demand to infinity. In such a case, the demand is perfectly elastic or ep = 00.

5. Perfectly Inelastic Demand:

A perfectly inelastic demand is one when there is no change produced in the demand of a product with change in its price. The numerical value for perfectly inelastic demand is zero (ep=0).


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