The Variety of Demand Curves

Economists classify demand curves according to their elasticity. Demand is elastic when elaelsticity is greater than 1, so that quantity moves proprotionately more than the price. Demand is inelastic when the elasticity is less than 1, so that quantity moves proprotionately less than the price. If the elasticity is exactly 1, so that quantity moves the same amount proprotionately as price demand to have unit elasticity.

Because the price elasticity of demand measures how much quantity demanded responds to change in the price, it is closely related to the slope of the demand curve. The following rule of thumb is a useful guide. The flatter the demand curve that passes through a given point the greater the price elasticity of demand. The steeper the demand curve that passes through a given point, the smaller the price elasticity of demand.

In the extreme case of a zero elasticity, shown in panel demand is perfectly inelastic and the demand curve is vertical. In this case regardless of the price the quantity demanded stays the same. As the elasticity rises the demand curve gets flatter and flatter as shown in panels (b) (c) and (d0. At the opposite extreme shown in demand is perfectly elastic. This occurs as the price elasticity of demand approaches infinity and the demand curve becomes horizontal, reflecting the fact that very small change in the price lead to huge changes in the quantity demanded.

Finally, if you have trouble keeping straight the terms elastic and inelastic, here’s a memory trick for you: Inelastic curves look like the letter. This is not a deep insight but it might help on your next exam.

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