Graphical Representation of Price Elasticity of Demand

By Bharat Choudhary -
Price elasticity of demand (PED or Ed) is a measure used in economics to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price. More precisely, it gives the percentage change in quantity demanded in response to a one percent change in price (ceteris paribus, i.e. holding constant all the other determinants of demand, such as income).




Coefficient (Ed)
Alternative
Ed = 0
Perfectly inelastic demand
0 < Ed  < 1
Inelastic or relatively inelastic demand
Ed = 1
Unit elastic, unit elasticity, unitary elasticity, or unitarily elastic demand
1 < Ed  < ∞
Elastic or relatively elastic demand
Ed  < ∞
Perfectly elastic demand

Elasticity of demand (PED) = % change in demand of good X / % change in price of good X 
  • If the PED is greater than one, the good is price elastic. Demand is responsive to a change in price. If for example a 15% fall in price leads to a 30% increase in quantity demanded, the price elasticity = 2.0 
  • If the PED is less than one, the good is inelastic. Demand is not very responsive to changes in price. If for example a 20% increase in price leads to a 5% fall in quantity demanded, the price elasticity = 0.25 
  • If the PED is equal to one, the good has unit elasticity. The percentage change in quantity demanded is equal to the percentage change in price. Demand changes proportionately to a price change. 
  • If the PED is equal to zero, the good is perfectly inelastic. A change in price will have no influence on quantity demanded. The demand curve for such a product will be vertical. 
  • If the PED is infinity, the good is perfectly elastic. Any change in price will see quantity demanded fall to zero. This demand curve is associated with firms operating in perfectly competitive markets.


Graphical representation of a relatively elastic demand curve 
Vs 
a relatively inelastic demand curve

Graphical representation of a relatively elastic demand curve Vs a relatively inelastic demand curve

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