Economics · Ch 3 — Theory of Demand
Price Elasticity of Demand — Meaning and Degrees
5
Price Elasticity of Demand — Meaning and Degrees
The Law of Demand only tells us the direction in which quantity demanded moves when price changes; it says nothing about how much. Price elasticity of demand () measures the degree of responsiveness of quantity demanded to a change in price:
Because price and quantity demanded normally move in opposite directions, is technically negative; by convention, only its numerical (absolute) value is used and compared. Based on this value, demand is classified into five degrees:
| Degree | Value of | Meaning |
|---|---|---|
| Perfectly elastic | An infinitesimally small price change causes an infinitely large change in quantity demanded (a horizontal demand curve) | |
| Perfectly inelastic | Quantity demanded does not change at all, whatever the price (a vertical demand curve) | |
| Unitary elastic | Percentage change in quantity demanded exactly equals percentage change in price |