Answer to Question #127127 in Microeconomics for Esihle

Question

Name and explain four different types of elasticity

Answer 1

1. Perfectly Elastic Demand (EP = ∞)

The demand is said to be perfectly elastic if the quantity demanded increases infinitely (or by unlimited quantity) with a small fall in price or quantity demanded falls to zero with a small rise in price. Thus, it is also known as infinite elasticity. It does not have practical importance as it is rarely found in real life.

2. Perfectly Inelastic Demand (EP = 0)

The demand is said to be perfectly inelastic if the demand remains constant whatever may be the price (i.e. price may rise or fall). Thus it is also called zero elasticity. It also does not have practical importance as it is rarely found in real life.

3. Relatively Elastic Demand (EP> 1)

The demand is said to be relatively elastic if the percentage change in demand is greater than the percentage change in price i.e. if there is a greater change in demand there is a small change in price. It is also called highly elastic demand or simply elastic demand.

4. Relatively Inelastic Demand (Ep< 1 )

The demand is said to be relatively inelastic if the percentage change in quantity demanded is less than the percentage change in price i.e. if there is a small change in demand with a greater change in price. It is also called less elastic or simply inelastic demand.