Useful Notes on the 5 Types of Price Elasticity of Demand

Price elasticity of demand may be of five types, viz, perfectly elastic demand, perfectly inelastic demand, unitary elastic demand, Relatively less elastic demand and Relatively more elastic demand.

(a) Perfectly elastic demand:

Perfectly elastic demand refers to a situation when due to a very insignificant or small change in price the quantity demanded changes infinitely. In such a case the demand curve is horizontal and parallel to OX axis. In this case the value of elasticity of demand is infinite (ed = It should be remembered that cases of perfectly elastic demand are very rare in actual life and it is only a theoretical case.

In the above diagram DD, is the demand curve which is of horizontal shape.

(b) Perfectly inelastic demand:

This is a type of elasticity of demand which is just the reverse of perfectly elastic demand. In such a situation whatever may be the change in price the quantity demanded remains the same.

In this case the demand curve DD₁ is vertical and the value of elasticity of demand is zero. Like perfectly elastic demand, cases of perfectly inelastic demand are rare in real life and as such are of any practical interest.

(c) Unitary Elastic demand:

It refers to a situation when the percentage change in quantity demanded is equal to percentage change in price. If price doubles the quantity demanded will became half and vice-versa. The value of elasticity of demand is unity (Ed = 1). The following table and the diagram will illustrate this situation.

Here Price falls from Rs. 10 to Rs. 8, that is 20% and quantity demand rises 20 kg to 24 kg that is 20%. Therefore ed = 1. The diagram indicates that DD is the demand curve which is referred to as ‘Rectangular hyperbola’. It implies that it has a uniform elasticity of demand at every point.

(d) Relatively more elastic demand:

It refers to a situation when the percentage change in quantity demanded is more than percentage change in price. The following table makes the thing clear.

Here Price falls Rs. 10 to 8, that is 20% and quantity demanded increases 20 kg to 26 kg that is 30%. Since percentage change in quantity demand is more than percentage change in price, end is greater than unity. The diagram indicates that DD is the demand curve which slopes downwards flatly.

(e) Relatively less Elastic demand:

It refers to a situation when the percentage change in quantity demand is less than percentage change in price. In this case value of elastic demand is less than unity and demand curve is steeper. The following table makes the thing clear.

Here Price falls Rs. 10 to Rs. 8, that is 20% and quantity rises 20 kg to 22 kg that 10%. Since percentage change in quantity demand is less than percentage change in price, elasticity of demand is less than unity (ed = 1/2). The diagram indicates that DD is the demand curve which slopes downward steeply.

All these five cases of elasticity can be also shown in one diagram. Along OX axis we measure the quantity demanded along OY axis we measure the prices.

DD is a perfectly elastic demand curve. D₁D₂ is a perfectly inelastic demand curve. D₃D₄ represents unitary elasticity, D₅D₆ is the more elastic demand curve, and D₇D₈ is less elastic demand.