Price Elasticity of Demand on a Graph: Videos & Practice Problems

Here's what students ask on this topic:

What does a perfectly elastic demand curve look like on a graph?

A perfectly elastic demand curve is represented as a horizontal line on a graph. This means that the price elasticity of demand is infinite ($E_d=\; \infty$). Buyers will purchase any quantity of the good at one specific price, but if the price increases even slightly, the quantity demanded drops to zero. This situation is rare but can be seen in perfectly competitive markets, such as the market for wheat or foreign currency. The horizontal line indicates that the market is very sensitive to price changes, and sellers cannot charge more than the market price without losing all customers.

How can you identify elastic demand on a demand curve graph?

Elastic demand occurs when the price elasticity of demand is greater than 1 ($E_d>\; 1$). On a graph, this is shown by a relatively flat or shallow demand curve. A small increase in price leads to a large decrease in quantity demanded because consumers can easily switch to substitutes. For example, if the price of beef rises, people might buy chicken instead. The curve's flatness reflects high responsiveness of quantity demanded to price changes, meaning the percentage change in quantity demanded is greater than the percentage change in price.

What is unit elastic demand and how is it represented graphically?

Unit elastic demand occurs when the percentage change in quantity demanded equals the percentage change in price, so the price elasticity of demand equals 1 ($E_d=\; 1$). Graphically, the demand curve is neither too flat nor too steep but has a shape where proportional changes in price and quantity demanded are equal. For example, a 10% increase in price leads to a 10% decrease in quantity demanded. Real-world examples are rare, but clothing sales during discounts often approximate unit elastic demand, where a 40% price cut might result in a 40% increase in quantity sold.

What characterizes inelastic demand on a graph and what are common examples?

Inelastic demand is characterized by a steep demand curve where the price elasticity of demand is less than 1 (). This means that quantity demanded changes less than the price change. Consumers are less responsive to price changes because the goods are necessities or have few substitutes. Common examples include cigarettes and gasoline. For instance, even if gasoline prices rise significantly, people still buy nearly the same amount in the short term. The steep curve reflects that quantity demanded remains relatively stable despite price fluctuations.

What does a perfectly inelastic demand curve look like and what are some examples?

A perfectly inelastic demand curve is a vertical line on the graph, indicating that quantity demanded does not change regardless of price changes. The price elasticity of demand is zero ($E_d=\; 0$). This situation is very rare but can occur for life-saving drugs or essential goods. For example, patients needing a life-saving drug will buy it no matter how high the price goes. Similarly, table salt is often considered nearly perfectly inelastic because people buy roughly the same amount regardless of small price changes. The vertical line shows that quantity demanded is fixed despite price variations.