This lesson explores three important patterns of elasticity: perfect elasticity, perfect inelasticity, and constant unitary elasticity. Understanding these cases helps explain how buyers and sellers respond to price changes and how those responses appear on graphs.
Perfect elasticity is the extreme case in which any change in price causes an infinitely large change in quantity demanded or quantity supplied. The curve is horizontal at the relevant price: buyers or sellers are willing to change quantity without accepting a different price.
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What does perfect elasticity mean, and what does its curve look like?
Any price change produces an unlimited response in quantity demanded or supplied. The curve is horizontal.
What does perfect inelasticity mean, and what does its curve look like?
Quantity does not change when price changes, no matter how large the price change is. The curve is vertical.
What is constant unitary elasticity?
It occurs when the percentage change in quantity equals the percentage change in price in absolute value, so elasticity has an absolute value of 1.
How does a demand curve with constant unitary elasticity differ in shape from a supply curve with constant unitary elasticity?
The demand curve is curved, becoming steeper on the left and flatter on the right. The supply curve is a straight line through the origin.
Why can equal absolute changes correspond to different percentage changes?
A percentage change is calculated relative to a denominator, such as the midpoint in the midpoint method. As the values and midpoint grow, the same absolute change represents a smaller percentage.
Quiz questions
How does the midpoint method calculate the denominator for a percentage change between two values?Answer: It uses the average of the starting and ending values.
Which good is given as an example of demand that may be highly elastic?Answer: Caribbean cruises.
How do highly elastic or highly inelastic real-world responses relate to the perfect extremes?Answer: They approach the extremes but are not necessarily literally infinite or zero.
What shape does a demand curve with constant unitary elasticity have?Answer: A curved shape that is steeper on the left and flatter on the right.
What is the key difference between slope and elasticity when interpreting a curve?Answer: Slope compares absolute changes, while elasticity compares percentage changes.
Based on Principles of Economics 3e by Steven A. Greenlaw, David Shapiro, Daniel MacDonald (OpenStax), licensed CC BY 4.0. Adapted into a summary, flashcards and quizzes.