Question

Explain various degrees of elasticity of demand diagrammatically.

Hint:

Remember the shapes: A horizontal line is perfectly elastic (infinite response), and a vertical line is perfectly inelastic (zero response). The flatter the curve, the more elastic the demand.

Answer 1

Step 1: Understanding the Concept:
Price elasticity of demand (\(E_d\)) measures the degree of responsiveness of the quantity demanded of a good to a change in its price. There are five main degrees of price elasticity.

Step 2: Explanation of Degrees with Diagrams:
\begin{enumerate} \item Perfectly Elastic Demand (\(E_d = \infty\)): A situation where a small or no change in price leads to an infinite change in quantity demanded. The demand curve is a horizontal line parallel to the X-axis. \begin{center} \begin{tikzpicture}[scale=0.6] \draw[->] (0,0) -- (5,0) node[right] {Q}; \draw[->] (0,0) -- (0,4) node[above] {P}; \draw[thick] (0,2.5) -- (4,2.5) node[right] {D}; \draw[dashed] (0,2.5) -- (0,2.5) node[left] {P*}; \end{tikzpicture} \end{center} \item Perfectly Inelastic Demand (\(E_d = 0\)): A situation where the quantity demanded does not change at all, irrespective of the change in price. The demand curve is a vertical line parallel to the Y-axis. \begin{center} \begin{tikzpicture}[scale=0.6] \draw[->] (0,0) -- (5,0) node[right] {Q}; \draw[->] (0,0) -- (0,4) node[above] {P}; \draw[thick] (2.5,0) -- (2.5,3.5) node[above] {D}; \draw[dashed] (2.5,0) -- (2.5,0) node[below] {Q*}; \end{tikzpicture} \end{center} \item Unitary Elastic Demand (\(E_d = 1\)): A situation where the percentage change in quantity demanded is exactly equal to the percentage change in price. The demand curve is a rectangular hyperbola. \begin{center} \begin{tikzpicture}[scale=0.6] \draw[->] (0,0) -- (5,0) node[right] {Q}; \draw[->] (0,0) -- (0,4) node[above] {P}; \draw[thick, domain=0.8:4.5] plot (\x, {4/\x}) node[right] {D}; \end{tikzpicture} \end{center} \item Relatively Elastic Demand (\(E_d > 1\)): A situation where the percentage change in quantity demanded is greater than the percentage change in price. The demand curve is relatively flat. \begin{center} \begin{tikzpicture}[scale=0.6] \draw[->] (0,0) -- (5,0) node[right] {Q}; \draw[->] (0,0) -- (0,4) node[above] {P}; \draw[thick] (1,3.5) -- (4,1) node[right] {D}; \end{tikzpicture} \end{center} \item Relatively Inelastic Demand (\(E_d < 1\)): A situation where the percentage change in quantity demanded is less than the percentage change in price. The demand curve is relatively steep. \begin{center} \begin{tikzpicture}[scale=0.6] \draw[->] (0,0) -- (5,0) node[right] {Q}; \draw[->] (0,0) -- (0,4) node[above] {P}; \draw[thick] (1,3.5) -- (3,1) node[right] {D}; \end{tikzpicture} \end{center} \end{enumerate}

Step 3: Final Answer:
The five degrees of elasticity of demand are perfectly elastic (\(E_d = \infty\)), perfectly inelastic (\(E_d = 0\)), unitary elastic (\(E_d = 1\)), relatively elastic (\(E_d > 1\)), and relatively inelastic (\(E_d < 1\)), each represented by a demand curve with a distinct shape.