Special Cases
If it is true that any increase in the price results in no decrease in the quantity demanded,
then we are describing the special case where demand for the good is perfectly inelastic.
Figure 7.2 shows the demand (D 0 ) for a life-saving pharmaceutical, for which there is no
substitute, and without which the patient dies. The vertical demand curve tells us that no
matter what percentage increase, or decrease, in price, the quantity demanded remains the
same. Mathematically speaking, Ed=0.
Elasticity, Microeconomic Policy, and Consumer Theory ‹ 77QuantityPrice $
D 0Q 0D 1Figure 7.2In the case where a decrease in the price causes the quantity demanded to increase with-
out limits, then we have the special case where demand is perfectly elasticfor that good.
Figure 7.2 shows demand for a good (D 1 ), maybe one farmer’s grain, which has many sub-
stitutes. A horizontal demand curve tells us that even the smallest percentage change in
price causes an infinite change in quantity demanded. Mathematically speaking, Ed=•.
Comparing the vertical (perfectly inelastic) demand curve to the horizontal (perfectly
elastic) demand curve allows us to draw an important generalization. As a demand curve
becomes more vertical, the price elasticity falls and consumers become more price inelastic.
The opposite generalization can be made as the demand curve becomes more horizontal.
Figure 7.3 illustrates some general points about slope and elasticity.
QuantityPrice $D 0P 0D 1P 1Figure 7.3