As the price of video games is raised from $20 to $25, their quantity demanded fell from 1.25 million copies to 1 million copies. The price elasticity of demand for video games is:

a. Elastic,

b. Unit elastic,

c. Inelastic,

d. Perfectly elastic,

e. Perfectly inelastic.

• When the price of video games is raised from $20 to $25, their quantity demanded fell from 1.25m copies to 1m copies. The price elasticity of demand for video games is elastic (a).

Elasticity = (change in quantity demanded/change in price)* (initial price/initial quantity).

=(0.25/5)*(20/1.25)=0.8 =elastic

Types of elasticity include:

• Perfect elasticity-a product is said to have an inelastic demand if a slight change in its price leads to a huge difference in the demand. A price decrease increases demand to infinity while a price increase reduces demand to zero. This is common in perfect competition with homogeneous products.
• Perfect in-elasticity- it occurs when there is no change in the quantity demanded when the price changes. It is common in demand for essential products such as salt.
• Relative elasticity- it is evident when the change in the quantity demanded is more significant than the difference in price. Consumers tend to shift purchases to substitute brands.
• Relative inelasticity- it is associated with the products whose change in demand is less than the price change.
• Unitary elasticity- when the change in demand of a product and the difference in price correspond then the elasticity is said to be unitary.