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If price elasticity of demand is zero, what does it mean?

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tonys538 | TA , Undergraduate | (Level 1) Valedictorian

Posted October 8, 2010 at 2:24 PM via web

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If price elasticity of demand is zero, what does it mean?

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william1941 | College Teacher | (Level 3) Valedictorian

Posted October 8, 2010 at 3:02 PM (Answer #1)

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If the price of a product is plotted against the demand of the product, the slope of the curve generated is called the price elasticity of demand. If the price elasticity of demand is zero, it means that the demand is totally independent of the price. No matter how the price varies, people buy the same quantity of the product.

The demand price curve of essential quantities like medicines has a slope which approaches zero. This is because people cannot reduce the quantity of medicine they buy no matter how expensive it gets, nor will they start buying more medicine than they require in case there is a fall in its price.

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neela | High School Teacher | (Level 3) Valedictorian

Posted October 8, 2010 at 3:25 PM (Answer #2)

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If Q1 and Q2 are quantity of the demand of commodities at  prices P1 and P2, then the elasticity is the ratio {(Q2-Q1)/(Q1+Q2)}/{(P2-P1)/(P1+P2)}.

Therefore eastity = (Q2-Q1)(P2-P1)/((Q1+Q2)(P2+P1))

So the elasticity  is zero , when Q1 = Q2 for any  change in price .

That means  when the demand is unaffected by any change in price of the commodity, the elasticity zero. Under the zero elasticity condition , neither the supply of commodities  nor the demand for the commodities show any variation  dispite change in price.

Elasticity is a pure unitless number as it is the ratio of two absolute ratios. The numerator is the ratio of commodities and so it is  unitless.The denominator is also a ratio of prices and so unitless.

The elasticity is  made use of in market analysis.

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