# Elastic Demand, Unit Demand And Inelastic Demand Essay

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…