Types of Price Elasticity of Demand

Depending on the numerical value of $E_d$, price elasticity of demand is classified into five types. Each type has a characteristic shape of demand curve, so the five are best learnt as a diagram set as well as a set of numbers.

1. Perfectly Elastic Demand ($E_d = \infty$). Even an infinitesimally small change in price causes an infinitely large change in quantity demanded — at the going price, consumers are willing to buy any quantity offered, but at even a slightly higher price, quantity demanded falls to zero. The demand curve is a horizontal straight line parallel to the X-axis. This is a theoretical/limiting case, approximated in real markets by a single small seller's output under perfect competition, where the firm must sell at the prevailing market price.

2. Perfectly Inelastic Demand ($E_d = 0$). Quantity demanded does not change AT ALL, however much price changes. The demand curve is a vertical straight line parallel to the Y-axis. Also a limiting/theoretical case — life-saving drugs for a patient in a medical emergency come closest to it in practice.

3. Unitary Elastic Demand ($E_d = 1$). The percentage change in quantity demanded is EXACTLY EQUAL to the percentage change in price. The demand curve is a rectangular hyperbola — total expenditure by the consumer stays the same at every point on this curve, since the two percentage changes exactly offset each other.

4. Relatively Elastic Demand ($E_d > 1$). The percentage change in quantity demanded is GREATER than the percentage change in price — a small price change produces a proportionately larger change in quantity demanded. The demand curve is comparatively flatter (closer to horizontal). Commodities with many close substitutes, or luxuries, typically show this behaviour.

5. Relatively Inelastic Demand ($E_d < 1$). The percentage change in quantity demanded is SMALLER than the percentage change in price. The demand curve is comparatively steeper (closer to vertical). Necessities with few substitutes typically show this behaviour.

<!-- FIGURE-NEEDED: A set of 5 small demand-curve diagrams side by side (or one panel each), labelled (a)-(e): (a) perfectly elastic — horizontal straight line DD parallel to X-axis; (b) perfectly inelastic — vertical straight line DD parallel to Y-axis; (c) unitary elastic — rectangular hyperbola curve DD; (d) relatively elastic — a comparatively flatter/flatter-sloped straight demand curve DD; (e) relatively inelastic — a comparatively steeper straight demand curve DD. Standard price (Y-axis) vs quantity demanded (X-axis) axes on each. -->

| Type | Value of $E_d$ | Shape of demand curve | Example |

|---|---|---|---| …