Define elasticity of demand and compare and contrast the three types of demand: elastic, inelastic, and unitary. What would the demand curve for elastic and inelastic demand look like when graphed?
What will be an ideal response?
Elasticity of demand refers to consumers' responsiveness or sensitivity to changes in price.
ELASTIC DEMAND occurs when consumers are sensitive to price changes. The demand curve is almost horizontal or exactly horizontal if demand is perfectly elastic.
INELASTIC DEMAND means that an increase or a decrease in price will not significantly affect demand for the product. The demand curve is almost vertical or exactly vertical if demand is perfectly inelastic.
UNITARY ELASTICITY exists when the increase in sales exactly offsets the decrease in price so that total revenue remains the same.
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