Question

In: Economics

iv) In your opinion, to what extent the perfectly elastic demand differs from perfectly inelastic demand....

iv) In your opinion, to what extent the perfectly elastic demand differs from perfectly inelastic demand. Support your answer with suitable graph.

Solutions

Expert Solution

Elasticity of demand refers to the change in quantity demanded as result of Change in price.lts the percentage change in quantity demanded divided by percentage change in price. Perfectly elastic demand and perfectly inelastic demand are the extremes of elasticity of demand.Lets look at these two concepts in terms of the following points.

* Meaning of perfectly elastic demand and perfectly inelastic demand.

Demand is said to be perfectly elastic , if there is an infinitely large change in quantity demanded when price barely changes.

Demand is said to be perfectly inelastic, if a change in price won't create any change in quantity demanded.

* Value of elasticity coefficient

If demand is perfectly elastic value of elasticity coefficient is infinity.

If demand is perfectly inelastic value of elasticity coefficient is zero.

* Shape of the demand curve

Perfect elasticity of demand means that demand curve is a horizontal straight line. Perfectly inelastic demand means that demand curve is a vertical straight line.


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