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What is the meaning of perfectly inelastic demand and perfectly elastic demand?

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16 Answers
Price elasticity is a measure of the responsiveness of the quantity demanded to a change in price. It is calculated as the percentage change in quantity demanded to a percentage change in price .

When quantity demanded is very responsive to a change in price we say demand is elastic; when quantity demanded is not very responsive to a change, we say that demand is inelastic.

The following figure illustrates the most extreme cases: perfectly elastic demand ( at a higher price, quantity demanded decreases to zero) and perfectly inelastic demand ( a change in price has no effect on quantity demanded)



Which factors affect demand elasticity of a good?
Availability of substitutes for this good.

When there are few or no substitutes for a good, demand tends to be relatively inelastic. Example: consider a drug that keeps you alive by regulating your heart. If two pills per day keep you alive, you are unlikely to decrease your purchase if the price goes up and also unlikely if the price goes down.

When one or more goods are very good substitutes for the good in question, demand will tend to be very elastic. consider two gas stations along your regular commute that offer gasoline of equal quantity. A decrease in teh posted price at one station may cause you to purchase all your gasoline there, while a price increase may lead you to purchase all your gasoline at the other station.

Other factors that affect demand elasticity in addition to the quality and availability of of substitutes are:
  • Portion of income spent on a good
  • Time
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Anthony Nwosa
Anthony Nwosa, Project Manager at SGN (2017-present)

Perfectly Inelastic Demand

A situation that occurs when the overall consumer requirements for a particular good or service do not vary when its price changes. A business that produces a good with a virtually perfect inelastic demand curve would usually be able to set their price for the good at a high level to sustain the current level of consumer demand.

Perfectly Elastic Demand

A theoretical economic situation in which the interest of consumers in purchasing a business' product is extinguished if the price of the product rises or consumer interest rises to infinity if the price falls. In a perfectly elastic demand situation, the responsiveness of demand to a change in price or the price elasticity is infinite, thereby resulting in a flat demand curve.

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Jonathan Kolber
Jonathan Kolber, Author, A Celebration Society. I think about a world of sustainable abundance.
Answered 132w ago · Author has 1.3k answers and 598.1k answer views

Thanks for the A2A. In perfectly inelastic demand, the demand is there regardless of price. If you ever saw the Twilight Zone episode, "The Rip Van Caper", you'd understand perfectly inelastic demand. A person dying of thirst will gladly trade anything--even a bar of gold--for a drink of water.

In the case of perfectly elastic demand, there is no demand above a certain price, and unlimited demand below that price. Arbitrage offers a real-world example of this. If I can buy an exchange-traded item, such as a share of stock, on one exchange and simultaneously sell it for a higher price on a different exchange (net of transaction costs, of course), I will buy all of the cheaper share that I possibly can. So will everyone else who's aware of the trade. (In the real world, the value of one's time is also a factor, and speed is of the essence. This is why such trading tends to be done by computers that are owned by funds with a lot of money and only with "arbs" that offer a significant volume of shares.)

Of course, all such examples are time-limited and contextual. As we move in the decades ahead from a context of scarcity to one of abundance, we should see an increasingly tight coupling of supply and demand for nearly everything (with a few notable exceptions). As capitalism approaches its completion, so will economics. One has value as a method to allocate scarce resources; the other as a method to understand such allocation.

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Andrew Simms
Andrew Simms, works at DiversiTech
Updated 268w ago · Author has 175 answers and 399.3k answer views
Perfectly inelastic demand means that a consumer will buy a good or service regardless of the movement of price. In order for perfectly inelastic demand to exist, there can be no substitutes available.
  • An example would be food for a starving man
  • Another example would be insulin to a diabetic.

Perfectly elastic demand means that a consumer will not buy a good or service if the price moves at all.
  • An example would be pink tennis balls. If the price of pink tennis balls went up, no one would buy them in lieu of yellow tennis balls.  Assuming a perfectly competitive market, if the price went down the producer would not be able to cover his costs.

In reality, there are very few examples of perfectly inelastic or elastic demand curves because consumers can usually find a good alternative product to substitute to or change consumption patterns when prices change.
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Heather Brevard
Heather Brevard, B.S. Computer Science & Economics, University of Wisconsin - Madison (2017)
Before I go into the definitions, let me just preface this answer with the following: good luck finding a real life example of either of those. Most goods can be described as having a demand elasticity somewhere between the two goods.
 
That being said, here are the definitions:
 
Perfectly inelastic demand describes a good that experiences no change in quantity demanded despite any percentage change in the price. For example, let's say water has a perfectly inelastic demand and the market demands 300 gallons of water when the price is $2.00. If the price were to rise to $10.00 the market would still demand 300 gallons. We know this doesn't happen in real life because people who couldn't afford such expensive water would probably just by Gatorade or Mountain Dew as a substitute (that is, if these prices don't experience in a similar hike, but that's a conversation for cross price elasticity).
 
Perfectly elastic demand is the opposite. If there is any change in the price whatsoever, the quantity demanded is driven down to zero. That is, the market will only accept one price. This also seems a little funky, because it wouldn't make sense for there to be a good that would experience no demand in response to either a price increase or decrease.
 
Hope this helps, and keep up with the econ!
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John Volpe
John Volpe
Answered 69w ago · Author has 291 answers and 203.8k answer views

With respect to elasticity of demand, how responsive is quantity demanded to changes in price? To find out, we look at the elasticity of demand, the percentage change in quantity demanded brought about by a percentage change in price.

Elasticity = %â–³Q/Q divided by %â–³P/P

If the elasticity co-efficient is greater than 1, demand is said to be elastic: a given percentage change in price will result in a greater percentage change in quantity demanded. A 10% decrease in price will bring about a greater than 10% increase in quantity demanded, so total revenues for the firm rise. A 10% increase in price will bring about a greater than 10% decrease in quantity demanded, so a price increase will reduce total revenues.

If the elasticity co-efficient is less than 1, demand is said to be inelastic: a given percentage change in price will result in a smaller percentage change in quantity demanded. A 10% decrease in price will bring about a less than 10% increase in quantity demanded, so total revenues for the firm fall. A 10% increase in price will bring about a less than 10% decrease in quantity demanded, so a price rise will increase total revenues.

If the elasticity co-efficient = 1, there is unitary elasticity of demand, meaning that percentage changes in price and quantity are precisely the same.

There are two extreme cases of elasticity of demand. When elasticity is 0, perfect inelasticity, there is no change in demand in response to a change in price. Lowering the price simply diminishes the value of total sales by reducing the revenue per unit without in any way increasing the number of units sold. With perfect elasticity, no matter what the supply of the good in question is, the same price can be obtained. Total money value of sales can be increased to any desired amount without lowering prices even slightly. The volume of sales can be increased without limit, even without lower prices per unit.

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