Answer to Question #115977 in Microeconomics for Lindokuhle Mpulo

Question

Critically discuss elastic, inelastic and unitary conditions/forms of price elasticity of demand through the use of practical examples and graphs.

Answer 1

Elastic demand is when percentage change in the quantity demanded exceeds the percentage change in price.Therefore, the ratio becomes more than one. For instance, if the quantity demanded increase by 20% when the price decrease by 10.the ratio is 0.2/0.1=2

Inelastic demand is when a change in price causes a small percentage change in quantity demanded. For example even if the price of petrol increases people with car have no option but to buy it.

Unitary elasticity is when the price changes results to the same percentage change of the quantity demanded or supplied. For example if the price of digital TVs increases by 20% the quantity demanded for digital TVs will decrease by 20%.