1. What are the classifications of price elasticity of demand?

 The classifications of price elasticity of demand includes:

 Perfectly elastic demand - Perfectly elastic demand is when the price is constant
but there is a change in the demand i.e. increase or decrease of a commodity. Thus,
the demand curve is parallel to the X-axis.
 Perfectly inelastic demand - Perfectly inelastic demand is when the demand is
constant or there is no change in the demand of a commodity even if the price
changes i.e. increases or decreases. Thus, the demand curve is parallel to the Y-axis.
 Relatively elastic demand - Relatively elastic demand is when the proportionate
change in demand is more than the proportionate change in the price.Thus, the
demand curve slopes downward from left to right.
 Relatively inelastic demand - Relatively inelastic demand is when the proportionate
change in demand is less than the proportionate change in the price. Thus, the
demand curve slopes downward from left to right but is steeper.
 Unitary elastic demand - Unitary elastic demand is when the proportionate change
in demand is equal to the proportionate change in price. Thus, the demand curve
slopes downward from left to right but it is a rectangular hyperbola.

2. What are the determinants of price elasticity of demand?

 The determinants of price elasticity of demand includes:
 Availability of close substitutes - If consumers can substitute the good for other
readily available goods that consumers regard as similar, then the price elasticity of
demand would be considered to be elastic. If consumers are unable to substitute a
good, the good would experience inelastic demand.
 If the good is a necessity or a luxury - The price elasticity of demand is lower if the
good is something the consumer needs, such as Insulin. The price elasticity of
demand tends to be higher if it is a luxury good.
 The proportion of income spent on the good - The price elasticity of demand tends
to be low when spending on a good is a small proportion of their available income.
Therefore, a change in the price of a good exerts a very little impact on the
consumer’s propensity to consume the good. Whereas, when a good represents a

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 large chunk of the consumer’s income, the consumer is said to possess a more
elastic demand.
 Time elapsed since a change in price - In the long term, consumers are more elastic
over longer periods, as over the long term after a price increase of a good, they will
find acceptable and less costly substitutes.

3. What are the classifications of price elasticity of supply?

 The classifications of price elasticity of supply includes:
 Perfectly Elastic Supply - A commodity is said to have a perfectly elastic supply if it
has an infinite supply at a particular price and even a slight change in this price
brings the supply down to zero. This further means that any quantity of the
commodity can be supplied at this price and suppliers refuse to supply even one
unit at any rate different from this price.
 Perfectly Inelastic Supply - A perfectly inelastic supply remains unmoved in
response to any change in the price. In other words, the supply of such a
commodity always remains constant no matter what the price is. A perfectly
inelastic supply is represented as Es= 0.
 Highly Elastic Supply - When percentage change in quantity supplied is more than
the percentage change in price then the supply is said to be highly elastic.
Alternatively, the supply of such a commodity has a high degree of responsiveness
or is volatile.
 Less Elastic Supply - For a less elastic supply, the percentage change in quantity
supplied is smaller than the percentage change in price. The supply for such a
commodity tends to change by a small factor and has a small degree of
responsiveness to a change in the price.
 Unitary Elastic Supply - When percentage change in quantity supplied is equal to
the percentage change in price such that the price elasticity of a supply is equal to
one, then supply for such a commodity is said to be unitary elastic. As mentioned,
in such a case Es= 1.

4. What are the determinants of price elasticity of supply?

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  The determinants of price elasticity of supply inlcudes:
 Availability of raw materials - For example, availability may cap the amount of gold
that can be produced in a country regardless of price. Likewise, the price of Van
Gogh paintings is unlikely to affect their supply.
 Length and complexity of production - Much depends on the complexity of the
production process. Textile production is relatively simple. The labor is largely
unskilled and production facilities are little more than buildings – no special
structures are needed.
 Mobility of factors - If the factors of production are easily available and if a
producer producing one good can switch their resources and put it towards the
creation of a product in demand, then it can be said that the PES is relatively elastic.
 Time to respond - The more time a producer has to respond to price changes the
more elastic the supply.
 Excess capacity - A producer who has unused capacity can and will quickly respond
to price changes in his market assuming that variable factors are readily available.
 Inventories - A producer who has a supply of goods or available storage capacity
can quickly increase supply to market.

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