A Chart of Five

The "middle" of this continuum is occupied by unit elastic. In that the "unit" and the two "perfectly" alternatives are really borders, boundaries, and endpoints, most of the real world action involving the price elasticity of demand is reflected by the two "relatively" alternatives--relatively elastic and relatively inelastic. Most demand curves encountered in the real world are likely to be relatively inelastic or relatively elastic.

And Five Curves

• Perfectly Elastic: Perfectly elastic demand means an infinitesimally small change in price results in an infinitely large change in quantity demanded. The coefficient of elasticity for this alternative is E = ∞. A click of the [Perfectly E] button reveals a perfectly elastic demand curve, which is horizontal. The focus of this demand curve is on a fixed price (Po), that is, an infinite range of quantities is associated with the same price. Infinitesimally small changes away from this fixed price cause the quantity to explode to infinite or drop to zero. Perfectly elastic demand for a good can occur, in theory, when buyers have the choice among a large number of perfect substitutes-in-consumption.

Five Demand Curves

• Relatively Elastic: Relatively elastic demand means a relatively small change in price results in a relatively large change in quantity demanded. The coefficient of elasticity for this alternative is in the range of 1 < E < ∞. A click of the [Relatively E] button reveals a relatively elastic demand curve, which is flat but not horizontal. The focus of this demand curve is on a narrow range of prices, that is, a large range of quantities are associated with a small range of prices. Small changes in price cause large changes in quantity demanded. Relatively elastic demand for a good occurs when buyers have the choice among a large number of close but not necessarily perfect substitutes-in-consumption.


• Unit Elastic: Unit elastic demand means that any change in price is matched by an equal relative change in quantity. The coefficient of elasticity for this alternative is in the range of E = 1. A click of the [Unit Elastic] button reveals a unit elastic demand curve, which has an unexpected curved shape. It is not a straight line like the other four elasticity alternatives. The reason is that a demand curve with a constant slope, such as found with a straight line, DOES NOT have constant elasticity. This means that to draw a demand curve with constant, unit elasticity it must NOT have a constant slope, it must have a constantly changing slope, such as the curve displayed here.


• Relatively Inelastic: Relatively inelastic demand means a relatively large change in price is needed to induce a relatively small change in quantity demanded. The coefficient of elasticity for this alternative is in the range of 0 < E < 1. A click of the [Relatively In] button reveals a relatively inelastic demand curve, which is steep but not vertical. The focus of this demand curve is on a narrow range of quantities, that is, a large range of prices are associated with a small range of quantities. Large changes in price cause small changes in quantity demanded. Relatively inelastic demand for a good occurs when buyers can choose only among a small number of imperfect substitutes-in-consumption.


• Perfectly Inelastic: Perfectly inelastic demand means that quantity demanded is unaffected by any change in price. The coefficient of elasticity for this alternative is E = 0. A click of the [Perfectly In] button reveals a perfectly inelastic demand curve, which is vertical. The focus of this demand curve is on a fixed quantity (Qo), that is, an infinite range of prices is associated with the same quantity. It matters not what price does, it can change a little or it can change a lot, but the quantity DOES NOT change. It is fixed. Perfectly inelastic demand occurs when buyers have no choice in the consumption of a good.

Slope and Elasticity

For relatively elastic and relatively inelastic demand, slope is only "suggestive" of elasticity. The reason is that any demand curve with constant slope actually contains both elastic and inelastic segments. In particular, the upper portion of the demand curve, near the price axis, is elastic and the lower portion, near the quantity axis is inelastic. In addition, the point of intersection with the price axis is perfectly elastic, the point of intersection with the quantity axis is perfectly inelastic, and the exact midpoint is unit elastic.