There is talk of perfectly elastic demand when a change in the price, regardless of its proportion, corresponds to astronomical variation in the quantity demanded.
Generally, for goods with this type of elasticity, consumers are not willing to pay more than a certain price, regardless of the quantity demanded. There are economic goods that, at a given price, their demand practically tends to infinity.
Look at the graph in the previous figure. The demand curve is displayed as a horizontal line at its price. This form of the demand curve tells us that the quantity demanded tends to infinity before any variation in its price. So that for any good with this elasticity its demand quantity will be infinitely sensitive to any price variation.
If the price of a given good with this type of elasticity passes, for example, from 10 to 12 euros, it would result in a fall to zero in its demand. Conversely, if the price went from 10 to 8 euros, it would result in a demand current classified as infinite.
Example of goods with perfectly elastic demand
Outside of economic theory, it is difficult to find goods that perfectly meet the characteristic of this type of elasticity. However, as a typical case for the case, some goods that have this elasticity can be cited.
- Drinking water
- Sale of fruits
- Sale of vegetables
The reality is that in the face of this type of goods, when the price drops, consumers feel strongly encouraged to continually consume large quantities of them. Meanwhile, given the increase in price, consumers feel greatly discouraged to reduce their consumption vertiginously.
Companies that sell this type of goods are in a perfect competition market. As this type of market is made up of a large number of small businesses, of which none can influence the price, the consumer is incredibly motivated by the price.
If a firm decides to raise the price it will receive consumer rejection, making its sale fall to zero. Thus, a firm cravingly decided to lower the price, consumers could sue until they reach amounts that the firm would not be able to produce.
Formula for perfectly elastic elasticity
To determine if we are facing a good with perfectly elastic demand, the following formula is used:
Example of calculation with perfectly elastic demand
Statistical data reflect that the price of apples has remained at 10 euros since December last year. However, its demand increased from 20 to 27 million in December this year.