Elasticity of Demand is the degree of responsiveness with which quantity demanded changes for a given change in price.

In other words it is a proportional change in the quantity demanded to a proportional change in price.

Numerical values explain the extent or degree of change in Demand while the sign of the ratio explains the direction of change.

Since the law of Demand is based on the inverse relation between price and quantity, the elasticity of Demand is always stated with a negative sign.

The numerical value of elasticity can be equal to 1 (that is called ‘unit’) more than one or less than one.

Cases of Elasticity of Demand

Unit Elastic

In case of unit elastic Demand (e = 1) both price and quantity (Demanded) changes occur in the same proportion.

Greater than Unit Elastic

If the value of elasticity exceeds one (e > 1) then the percentage or proportional change in quantity demanded is greater than that in price and the good is said to be price elastic or highly responsive to a change in price.

Less Than Unit Elastic

If the value of elasticity is less than one (e < 1) then the proportional change in quantity is smaller than that in price and the Demand for the good is said to be price inelastic or not very responsive to a change in price.

Perfect Elastic

At this extreme, for any small decrease in price, the increase in the quantity demanded is infinitely large. In such a case, Suppliers Demand the entire can. Here the Demand is said to be perfectly price elastic (e = that is infinity).

Perfect Inelastic

For any change in price there is no change in the quantity demanded. Therefore the Demand is completely unresponsive to any change in price. In this case the Demand is said to be perfectly price inelastic (e = 0)