Perfectly Elastic Demand – Explanation with Examples
Perfectly elastic demand (also known as infinite elasticity) is where even a little change in the price results in an infinite change in the quantity demanded.
Definition of Perfectly Elastic Demand
Perfectly elastic demand is where the demand is infinite only at a specific price. Even a slight change in the price will eliminate the entire demand for the product, resulting in zero demand.
Perfectly elastic demand happens in a market where the customers are extremely sensitive to the changes in price.
Examples of Perfectly Elastic Demand
An infinite number of quantities demanded is available with the given level of price in perfectly elastic demand market. Even a slight increase or decrease in the price result zero level of demand.
Perfectly elastic demand is an extreme case where practically it is rare to see. The following example will help you to understand the behavior of perfectly elastic demand.
Example: A company in the Washington, United States sells apples for $2 per pound. If the company increases their prices then the below will be the result. There are many companies in Washington, United States which sell apples. The competition of the price is extremely high. The prices of all companies are at the same level due to this factor with a very low-profit margin. On other hand, customers can easily purchase many substitute products (ex: oranges, grapes) to fulfill their needs and easily switch over with suppliers as well as the product. Hence any company which sells apples can not increase the price which results in zero level of demand.
| Product Price (A) | Product Demand (B) | Revenue (A * B) |
|---|---|---|
| $1 | 0 | 0 |
| $1.9 | 0 | 0 |
| $2 | Can be Infinite | Can be Infinite |
| $2.1 | 0 | 0 |
| $3 | 0 | 0 |
Perfectly Elastic Demand Diagram
The below diagram shows the relationship between product price and product demand in a perfectly elastic demand market.
The Elasticity Coefficient of Perfectly Elastic Demand
The elasticity coefficient of perfectly elastic demand is infinite (Ed = ∞).
You can learn about the Elasticity Coefficient Formula and Interpretations by reading this article.
Recommended Articles:
- Price Elasticity of Demand Explanation
- Types of Price Elasticity of Demand – Full Explanation
- Unitary Elastic Demand: Definition, Examples, Curve
- Inelastic Demand: Definition, Examples, Diagram
- Difference Between Elastic Demand and Inelastic Demand
- Difference Between Unitary Elastic and Inelastic Demand
- Explanation and Calculation of Elasticity Coefficient
