Question

What is perfectly elastic demand/supply? Draw a graph to represent perfectly elastic demand/supply.

What is perfectly inelastic demand/supply? Draw a graph to represent perfectly elastic demand/supply.

When the price of t-shirts increases by 12 percent, the quantity of t-shirts demanded falls by 20 percent. Calculate the price elasticity of demand. Is the demand for t-shirts elastic, inelastic, or unit elastic?

When the price of t-shirts falls by 30 percent, the quantity of t-shirts supplied decreases by 20 percent. Calculate the price elasticity of supply. Is the supply for t-shirts elastic, inelastic, or unit elastic?

Answer 1

Demand or supply can be considered perfectly elastic when the quantity is highly responsive towards a smallest price and that the demand or the supply curve is horizontal towards the quantity axis.

Demand or supply can be considered perfectly inelastic when the quantity is unresponsive towards any price change and that the demand or the supply curve vertical towards the price axis.

The price elasticity of demand is % change in Q / % change in P or -20/+12 = -1.67. Since the absolute value of elasticity is greater than 1, the demand for t-shirts is considered to be elastic.

The price elasticity of supply is % change in Q / % change in P or -20/-30 = 0.67. Since the absolute value of elasticity is less than 1 the supply for t-shirts is considered to be inelastic.