POLITEKNIK KUCHING SARAWAK

COMMERCES DEPARTMENT
MICROECONOMICS
DAT1/S1

NAME : MASTIJAH BINTI AHMAD

REG. NO : 05DAT10F1014
LECTURER NAME : ENCIK ERMIZAM BIN EDNI
PERFECTLY INELASTIC DEMAND

Perfectly elastic means an infinitesimally small change in price results in an infinitely large
change in quantity demanded or supplied. This elasticity alternative exists when the price is
fixed, that is, an infinite range of quantities is associated with the same price. Perfectly elastic
demand can occur, in theory, when buyers have the choice among a large number of perfect
substitutes in the consumption of a good. In an analogous way, perfectly elastic supply can occur
when sellers have the choice among a large number of perfect substitutes in the production.

If quantity demanded is completely unaffected by a price change, then

You would say that demand is perfectly inelastic at that price, to reflect the fact that quantity
demanded is completely unresponsive to a change in price. On a graph with price on the y-axis,
perfectly inelastic demand appears as a vertical demand curve. Its slope is negative infinity,
which leads to Ed = 0.
Example: if price of antibiotic increase from RM20 to 21, than demand for an antibiotic is same
100. So, demand for an antibiotic becomes highly inelastic when it alone can kill an infection
resistant to all other antibiotics. Rather than die of an infection, patients will generally be willing
to pay whatever is necessary to acquire enough of the antibiotic to kill the infection.

Demand is perfectly inelastic if consumers ( patients) are willing to pay ANY PRICE for the
good (antibiotic).
INELASTIC DEMAND

Situation where the demand for a product does not increase or decrease correspondingly with a
fall or rise in its price. From the supplier's viewpoint, this is a highly desirable situation because
price and total revenue are directly related; an increase in price increases total revenue despite a
fall in the quantity demanded.

Soap is a necessary item and people still buy it in almost the same quantities regardless of the
price. People may switch to cheaper brands but people will still continue to buy the soap.

RM

Example: if price of salt increase from P2 to P1,than demand for salt decrease from Q2 to Q1.
So, salt will have an inelastic demand. This is because there is not a lot of substitute to salt.
Another reason is that people spend a small fraction of their monthly income on salt. Hence, any
changes in the price of salt, will have little or no effect on the quantity demanded for salt.
UNIT ELASTIC DEMAND

Unit elastic means that any change in price causes an equal proportion change in quantity.
Quantity changes are matched by price changes. More specifically, the percentage change in
quantity is equal to the percentage change in price. Unit elastic demand occurs when buyers can
choose from among a modest number of substitutes in the consumption of a good. In an
analogous way, unit elastic supply occurs when sellers can choose among a modest number of
substitutes in the production.If quantity demanded changes by exactly the same proportion when
price changes, then

You would say that demand is unit elastic at that price. Any percentage change in price is
matched by an equal percentage change in quantity demanded.

A 5% increase in price

A 5% decrease in quantity demanded

Example: if price of coffee increase from P1 to P, than demand for coffee decrease from Q1 to
Q. Looking at the graph above, you can see that a 5 percent increase in price causes a 5 percent
decrease in quantity demanded. Therefore, Ed = -1 and demand is unit elastic.
ELASTIC DEMAND

That increases or decreases (stretches or contracts) as the price of an item goes down or up. See
also elasticity of demand.

Elastic demand means that demand for a product is sensitive to price changes. For example, if
the selling price of a product is increased, there will be fewer units sold. If the selling price of a
product decreases, there will be an increase in the number of units sold. Elastic demand is also
referred to as the price elasticity of demand.

The term inelastic demand means that the demand for a product is not sensitive to price changes.

Elastic demand is a major concern for a manufacturer that attempts to set product prices based on
costs. For instance, if the manufacturer’s production and sales have declined and it fails to cut
fixed costs, the manufacturer could be worse off by increasing selling prices.

RM

Example: if price Nescafe decrease from P1 to P2, than demand for Nescafe become increase
from Q1 to Q2.
PREFECTLY ELASTIC DEMAND

If demand is perfectly elastic, it means that at a certain price demand is infinite (A good with a
very high elasticity of demand). In other words if a firm increased price by 1%, it would see all
its demand evaporate.

In a perfectly competitive market it is assumed a firm would have a perfectly elastic demand.
This is because if they increased the price, the consumers with perfect information would switch
to other firms who offer the identical product.

If quantity demanded changes by a very large percentage as a result of a tiny percentage change
in price, then you will have (in the extreme case)

You would say that demand is perfectly elastic, to reflect the fact that quantity demanded is
extremely responsive to even a small change in price. On a graph, perfectly elastic demand
appears as a horizontal demand curve. Its slope is 0, which leads to Ed = negative infinity.
Technically, the elasticity in this extreme case would be undefined but it approaches negative
infinity as demand becomes more elastic.
 

 The graph above illustrates that at prices above $20, quantity demanded is zero. However, when
price is set below $20, quantity demanded increases infinitely.

This demand curve may be extreme, but it is exactly the demand that a firm in a perfectly
competitive market faces. If a firm tries to sell above the market price, it sells nothing. If the firm
prices at or below the market price, it can sell as much as it wants.