Reading: Three Categories of Elasticity

Photo of three meerkats at a zoo.

It’s helpful to divide elasticities into three categories: elastic, inelastic, and unitary. An elastic demand or elastic supply is one in which the elasticity is greater than 1, indicating a high responsiveness to changes in price. Elasticities that are less than 1 indicate low responsiveness to price changes and correspond to inelastic demand or inelastic supply. Unitary elasticities indicate proportional responsiveness of either demand or supply. In other words, the change in demand or supply is equal to the change in price, and the elasticities equal 1. These ranges are summarized in Table 1, below.

Table 1.Three Categories of Elasticity: Elastic, Inelastic, and Unitary
If . . . Then . . . And It’s Called . . .
% change in quantity > % change in price % change in quantity % change in price > 1 Elastic
% change in quantity = % change in price % change in quantity % change in price = 1 Unitary
% change in quantity < % change in price % change in quantity % change in price < 1 Inelastic