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Relatively Elastic and Perfectly Elastic Demand
- shows a relatively elastic demand curve. A demand curve is defined as relatively elastic if the price elasticity is above 1 in absolute value. A relatively elastic demand means that consumers are very sensitive to changes in price of a good. That is, a small change in price leads to a large change in quantity demanded which is why price elasticity is greater than 1 in absolute value.
- shows a perfectly elastic demand curve which implies a price elasticity of infinity. This means that a small change in price leads to an infinite change in quantity demanded. In reality such a demand curve is unrealistic.
Relatively Inelastic and Perfectly Inelastic Demand
3) shows a relatively inelastic demand curve. The absolute value of demand elasticity is less than 1 in absolute. It means that consumers are not very sensitive to price changes and a change in price leads to a smaller change in quantity demanded as a result. Additionally, goods that have few substitutes often have relatively inelastic demands.
4) shows a perfectly inelastic demand curve – a vertical demand curve. This is a hypothetical and extreme case where the price of a good can increase infinitely but the quantity demanded does not change at all. In theory, if consumers are not sensitive to price at all then an increase in price will have no effect on change in quantity demanded. For example, a life saving drug can have demand that is perfectly inelastic.
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YED = %Δ in quantity demanded / %Δin price
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