While the elasticity value falls as we move down the demand curve, an important dividing line occurs at the value of -1. This is illustrated in Table 4.1, and is a property of all straight-line demand curves. Disregarding the negative sign, demand is said to be elastic if the price elasticity is greater than unity, and inelastic if the value lies between unity and 0. It is unit elastic if the value is exactly one.
Demand is elastic if the price elasticity is
greater than unity. It is inelastic if the value lies between unity and 0. It is unit elastic if the value is exactly one.
Economists frequently talk of goods as having a “high” or “low” demand elasticity. What does this mean, given that the elasticity varies throughout the length of a demand curve? It signifies that, at the price usually charged, the elasticity has a high or low value. For example, your weekly demand for coffee at Starbucks might be unresponsive to variations in price around the value of $2.00, but if the price were $4, you might be more responsive to price variations. Likewise, when we stated at the beginning of this chapter that the demand for food tends to be inelastic, we really mean that at the price we customarily face for food, demand is inelastic.
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