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Perfect inelasticity and perfect elasticity of demand

Perfect inelasticity refers to a situation in which the quantity demanded does not change at all, regardless of the price. Perfect elasticity refers to a situation in which the quantity demanded is extremely sensitive to changes in price, with even a small change in price leading to a large change in quantity demanded. Created by Sal Khan.

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• At time , |%change P|=1.3 from \$5 to \$1, not 1.6. Average price should be \$3, not \$2.50 (Regardless of |%change Q|=0). Is this correct?...
• Yeah, I just watched that too and thought, oh no, I have lost my mind and don't know how to calculate averages. It should be 1+5/2 giving an av of 3. Shouldn't it????!!!! I hope so, other wise I may as well just quit trying to learn this and get a job as a bin man.
• I might be wrong. But i think i found a problem with the vending machine example. If the price of the left vending machine went down to \$.99, you might still have people who prefer to use the one on the right for three reasons that i can think of. one They might be in a hurry and just don't notice the difference. Two they might just have some preference to the one on the right. And three they might not want to deal with an extra penny, or perhaps some OCD kicks in and they just prefer a more even number. Although there still may be more people who will go the Franklin way and say "a penny saved is a penny earned". but I do not think that a one cent decrees in price calls for a complete 100% increase in demand. I dont have any thing to prove this, its just my opinion.
• Introductory economics tends to assume rational actors with perfect information. No rational actor would willingly pay more when he or she doesn't have to, and perfect information means that he or she would not mistakenly miss the cheaper machine. You will experience imperfect information and irrationality as you move into higher econ courses.
• Hey first off thank you so much for making these videos. Without question, you have been the person to make figuring out elasticity clear for me and I was a bit worried with my mid-term coming up this Wednesday.

I looked through the questions and did not find answers to the remaining situation and wanted to just ask if what I did was correct so that I know I have figured out how to do this properly.

So at I decided to try the change going from \$1.00 to \$0.99 (-0.01 in P) and 100 Q to 200 Q (+100 in Q). These are the last two steps:

(100/150) * 100 / (-0.01/0.995) * 100 =
2/3 * (0.995/0.01)=
2/3 * 99.5 =
66.33

Thank you so much for all your hard work, you are part of the reason if I hypothetically do well Wednesday!
• Yes, you are indeed right! You have got the idea of percent change down.
• Assuming Insulin doesn't expire for a long time (say 2 years, I don't really know when it expires) then in that case wouldn't people be inclined to purchase more Insulin at that time because it would save them money. It's like when you have a sale. People buy more at that time just because prices are lower, irrespective of whether they are actually going to use it at that particular time.
• I thought this originally as well but Sal answers this question right away. He clarifies that we are looking at this scenario in terms of ceteris paribis (all other factors remain constant.) So we assume that there is no change any of the factors of demand (such as change in expected price) and we are only looking at changes in price, which causes a change in quantity demanded.

Hope this helps
• I'm a little confused by the perfect elasticity line. Shouldn't it be a DOT, rather than a horizontal line? In this example, no matter the damand of quantity, it can only sell a 100 for a dolar.
• A better example of something with perfect elasticity is money itself.

If I offer to sell \$100 notes for the price of \$100 or greater, nobody would bother buying any – it would just be a waste of their time. However, if I offered to sell \$100 notes for the price of \$99.99, then some smart people would work out that they can make a lot of free money by buying my notes and selling them back to me to buy more, etc - demand would become theoretically infinite!
• Is perfect elasticity the same as unit elasticity?
• No, the intuition (for me at least) is following:
UNIT: if you double the price, the quantity you can sell drops to one half. If you cut your price to one half, you are able to sell twice as much. The change is proportional to your action.

PERFECT: No matter how little you lower the price, your sells will skyrocket through the roof and no matter how little you increase the price, you are not able to sell anything. Even the slightest action you make causes biggest possible change.
• Aside from being a need for survival and having less substitute what else would be a reason for a product to be inelastic?
• Think of brands for example. If consumers are convinced one brand is much better than the other, they are more likely to buy the brand they like, even if its price is higher.

Income can also affect the elasiticity of demand. If one gets used to a given good or service and he/she is rich enough to hold the price negligible he/she will be more likely to buy the good or service even if the price went up.

Time can also be a factor, but that is due to the fact that on the lung run it is easier to find substitutes. If the price of fuel went up, more and more people would find another ways of transportation in the long run, but tomorrow, they still would buy the amount of fuel they usually do.
• So basically in simplified form, with perfect inelasticity, no matter what the price is, the demand will always remain the same?
• Yes. The demand curve is perfectly inelastic, which means it it has a slope of 0. No matter what the price is (within reason), the consumer will still buy the product.
• What types of markets are more or less elastic?