IBonomicsPrice Elasticity of Demand (PED)SL
MicroeconomicsA diagram illustrating different types of price elasticity of demand: perfectly inelastic, perfectly elastic, and unitary elastic demand curves.
Curves and elements
- perfectly inelastic
- Perfectly Inelastic Demand: Vertical line — quantity demanded is completely unresponsive to price (PED = 0).
- perfectly elastic
- Perfectly Elastic Demand: Horizontal line — consumers will only buy at one price (PED = ∞).
- unitary
- Unitary Elastic Demand: Downward-sloping curve where total revenue is constant at all points (PED = 1).
Key explanations
- 1
The diagram shows three key types of price elasticity of demand, which measure how quantity demanded responds to changes in price.
- 2
A perfectly inelastic demand curve is vertical, indicating that quantity demanded does not change at all when price changes (PED = 0).
- 3
A perfectly elastic demand curve is horizontal, indicating that consumers are only willing to purchase at one price, and quantity demanded drops to zero if the price changes (PED = ∞).
- 4
A unitary elastic demand curve has a constant elasticity of 1, meaning the percentage change in quantity demanded is equal to the percentage change in price.
- 5
Understanding elasticity helps firms set prices and helps policymakers predict consumer responses to taxes and subsidies.
Example exam question
Using a diagram, explain the difference between perfectly elastic, perfectly inelastic, and unitary elastic demand.
Show example answer
Perfectly inelastic demand is represented by a vertical line where quantity demanded remains the same regardless of price — common for necessities like insulin. Perfectly elastic demand is shown by a horizontal line, meaning consumers will only buy at one specific price and none at any other — often theoretical but can apply to commodities in competitive markets. Unitary elastic demand occurs when a percentage change in price results in an equal percentage change in quantity demanded — total revenue remains unchanged. Each curve shows a different consumer sensitivity to price changes.
