When the quantity demanded is not very responsive to changes in price?

There are two extreme cases of elasticity: when elasticity equals zero and when it’s infinite. We will describe each case.

Infinite elasticity or perfect elasticity refers to the extreme case in which either the quantity demanded (Qd) or supplied (Qs) changes by an infinite amount in response to any change in price at all. In both cases, the supply curve and the demand curve are horizontal, as shown in Figure 1, below.

Perfectly elastic supply is unrealistic; however, the curve can be explained using a little imagination. If supply is perfectly elastic, it means that any change in price will result in an infinite amount of change in quantity. Suppose that you baked delicious cookies and your costs, including inputs and time, were $3 per cookie. At $3, you would be willing to sell as many cookies as you could. You would not sell a single cookie if the price were any lower than $3, and if price were above $3, you would sell an infinite amount. In summary, your supply curve would be perfectly elastic at a price of $3, and any change in price would result in a change in quantity supplied to infinity or zero, depending on whether price increased or decreased, respectively.

Similarly, perfectly elastic demand is an extreme example. Perfect elastic demand means that quantity demanded will increase to infinity when the price decreases, and quantity demanded will decrease to zero when price increases. When consumers are extremely sensitive to changes in price, you can think about perfectly elastic demand as “all or nothing.” For example, if the price of cruises to the Caribbean decreased, everyone would buy tickets (i.e., quantity demanded would increase to infinity), and if the price of cruises to the Caribbean increased, not a single person would be on the boat (i.e., quantity demanded would decrease to zero).

Figure 1. Infinite Elasticity. The horizontal lines show that an infinite quantity will be demanded or supplied at a specific price. This illustrates the cases of a perfectly (or infinitely) elastic demand curve and supply curve. The quantity supplied or demanded is extremely responsive to price changes, moving from zero for prices close to P to infinite when prices reach P.

Zero elasticity or perfect inelasticity, as depicted in Figure 2, refers to the extreme case in which a percentage change in price, no matter how large, results in zero change in quantity supplied or demanded.

While a perfectly inelastic supply is an extreme example, goods with limited supply of inputs are likely to feature highly inelastic supply curves. Consider housing in prime locations such as apartments facing Central Park in New York City or beachfront property in Southern California. If housing prices increase for beachfront property in Southern California, there is a fixed amount of land, and only so many houses can be squeezed in along the beach. If housing prices decrease for Central Park–facing apartments, sellers are not going to bulldoze the buildings. Perfectly inelastic supply means that quantity supplied remains the same when price increases or decreases. Sellers are completely unresponsive to changes in price.

Similarly, while perfectly inelastic demand is an extreme case, necessities with no close substitutes are likely to have highly inelastic demand curves. This is the case with life-saving prescription drugs, for example. Consider a person with kidney failure who needs insulin to stay alive. A specific quantity of insulin is prescribed to the patient. If the price of insulin decreases, the patient can’t stock up and save it for the future. If the price of insulin increases, the patient will continue to purchase the same quantity needed to stay alive. Perfectly inelastic demand means that quantity demanded remains the same when price increases or decreases. Consumers are completely unresponsive to changes in price.

Figure 2. Zero Elasticity. The vertical supply curve and vertical demand curve show that there will be zero percentage change in quantity (a) supplied or (b) demanded, regardless of the price. This illustrates the case of zero elasticity (or perfect inelasticity). The quantity supplied or demanded is not responsive to price changes.

Self Check: Calculating Price Elasticity

Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.

You’ll have more success on the Self Check if you’ve completed the four Readings in this section.

Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.

The elasticity of demand refers to the degree to which demand responds to a change in an economic factor.

Price is the most common economic factor used when determining elasticity. Other factors include income level and substitute availability.

Elasticity measures how demand shifts when economic factors change. When demand remains constant regardless of price changes, it is called inelasticity.

• The elasticity of demand refers to the change in demand when there is a change in another economic factor, such as price or income.
• Demand is considered inelastic if demand for a good or service remains unchanged even when the price changes,
• Elastic goods include luxury items and certain food and beverages as changes in their prices affect demand.
• Inelastic goods may include items such as tobacco and prescription drugs as demand often remains constant despite price changes.

The elasticity of demand, or demand elasticity, measures how demand responds to a change in price or income. It is commonly referred to as price elasticity of demand because the price of a good or service is the most common economic factor used to measure it.

An elastic good is defined as one where a change in price leads to a significant shift in demand and where substitutes are available for an item, the more elastic the good will be.

The price elasticity of demand is calculated by dividing the percentage change in quantity demanded by the percentage change in price.

If the quotient is greater than or equal to one, the demand is considered to be elastic. If the value is less than one, demand is considered inelastic.

Common examples of products with high elasticity are luxury items and consumer discretionary items, such as a brand of cereal or candy bars. Food products are easily substituted and brand names are easily replaced by lower-priced items.

A change in the price of a luxury car can cause a change in the quantity demanded, and the extent of the price change will determine whether or not the demand for the good changes and if so, by how much.

Other factors influence the demand elasticity of goods and services such as income level and available substitutes. During a period of job loss, people may save their money rather than upgrading their smartphones or buying designer purses, leading to a significant change in the consumption of luxury goods.

Available substitutes for a good or service makes an item more sensitive to price changes. If the price of Android phones increases by 10%, this could move demand from Android to iPhones.

Inelasticity of demand is evident when demand for a good or service is static when its price or other factor changes,

Inelastic products are usually necessities without acceptable substitutes. The most common goods with inelastic demand are utilities, prescription drugs, and tobacco products. Businesses offering such products maintain greater flexibility with prices because demand remains constant even if prices increase or decrease.

The most common goods with inelastic demand are utilities, prescription drugs, and tobacco products. In general, necessities and medical treatments tend to be inelastic, while luxury goods tend to be most elastic.

The cross elasticity of demand measures the responsiveness in quantity demanded of one good when the price of another changes. Cross elasticity of demand can refer to substitute goods or complementary goods. When the price of one good increases, the demand for a substitute good will increase as consumers seek a substitute for the more expensive item. Conversely, when the price of a good rises, any items closely associated with it and necessary for its consumption will also decrease.

The advertising elasticity of demand (AED) is a measure of a market's sensitivity to increases or decreases in advertising saturation. The elasticity of an advertising campaign is measured by its ability to generate new sales.

Positive advertising elasticity means that an uptick in advertising leads to an increase in demand for the goods or services advertised. A good advertising campaign will lead to a positive shift in demand for a good.

The four main types of elasticity of demand are price elasticity of demand, cross elasticity of demand, income elasticity of demand, and advertising elasticity of demand. They are based on price changes of the product, price changes of a related good, income changes, and changes in promotional expenses, respectively.

Elasticity is measured by the ratio of two percentages, measured by calculating the ratio of the change in the quantity demanded to the change in the price.

If the price elasticity is equal to 1.5, it means that the quantity of a product's demand has increased 15% in response to a 10% reduction in price (15% / 10% = 1.5). 

Elasticity occurs when demand responds to changes in price or other factors. Inelasticity of demand means that demand remains constant even with changes in economic factors.

Products and services for which consumers have many options commonly have elastic demand, while products and services for which consumers have few alternatives are most often inelastic