Question

2. Explain various types of price Elasticity
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Answer 1

Explanation:

Elastic demand is the one when the response of demand is greater with a small proportionate change in the price. ... On the other hand, inelastic demand is the one when there is relatively a less change in the demand with a greater change in the price.

Answer 2

Types of Price Elasticity of Demand

1.Perfectly elastic demand

2.Perfectly inelastic demand

3.Relatively elastic demand

4.Relatively inelastic demand

5.Unitary elastic demand

1. Perfectly elastic demand

Perfectly elastic demand is when the price is constant but there is a change in the demand i.e. increase or decrease of a commodity. Thus, the demand curve is parallel to the X-axis.

Here, EP = ∞

2. Perfectly inelastic demand

Perfectly inelastic demand is when the demand is constant or there is no change in the demand of a commodity even if the price changes i.e. increases or decreases.

Thus, the demand curve is parallel to the Y-axis. Demand for salt is an example of perfectly inelastic demand.

Here, EP =0

3. Relatively elastic demand

Relatively elastic demand is when the proportionate change in demand is more than the proportionate change in the price.

In other words, this means that a little change in the price shall cause more change in demand. Thus, the demand curve slopes downward from left to right. An example of this is luxury goods.

Here, EP ˃ 1

4. Relatively inelastic demand

Relatively inelastic demand is when the proportionate change in demand is less than the proportionate change in the price.

In other words, this means that more change in price shall cause less change in demand. Thus, the demand curve slopes downward from left to right but is steeper. An example of this is the necessary goods.

Here, EP ˂ 1

5. Unitary elastic demand

Unitary elastic demand is when the proportionate change in demand is equal to the proportionate change in price.

In other words, it means that the change in demand is the same as the change in price it may increase or decrease.

Thus, the demand curve slopes downward from left to right but it is a rectangular hyperbola. An example of this is comfort goods.

Here, EP = 1