Elastic Demand, Unit Demand And Inelastic Demand Essay

1514 Words Jul 29th, 2015 null Page
Elastic Demand, Unit Demand and Inelastic Demand:
Understanding the law of demand as it pertains to the elasticity of demand allows economists to measure consumers’ responsiveness or sensitivity to changes in the price of a product. Measuring the degree of this change or percentage of change will result in elastic, unit or inelastic demand. Elastic demand (elasticity) means that demand for a product is sensitive to price changes. Demand elasticity helps a company to predict changes in demand based on changes in: price, competitive goods (substitutes) and other factors such as is the item a necessity or a luxury. The formula for calculating price elasticity of demand is: Price Elasticity of Demand (eD) = (% changein Quantity demanded )/(%Change in price) . If the formula creates a number greater than 1 the demand is perfectly elastic. Unit Elastic – Describes a supply or demand curve that is perfectly responsive to changes in price. If the formula creates a number equal to 1 the demand is unit elastic. Meaning that the change in quantity demanded is exactly equal to the change in price. If the price goes up by 20% the quantity demanded goes down by 20%. The inverse of this would also be true if the price goes down by 20% then the quantity demanded will go up by 20%. Therefore, if the demand for the product is unit elastic, a change in price will not cause any change in total revenues. There are few goods consider to be unit elastic, but products such as medicines…

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