The Tale of Two Products: The Extremes of Price Elasticity of Demand

In the lively town of Econoville, two shopkeepers, Raj and Amit, ran very different businesses.

🔹 Raj owned "Tech Haven", a store selling high-end smartphones.
🔹 Amit ran "MediCare Plus", the only pharmacy in town, selling life-saving medicines.

One day, due to supply chain issues, both had to increase their prices. That’s when they noticed something surprising…

📱 Raj’s Price Hike – A Disaster!

Raj increased the price of his flagship smartphone from ₹50,000 to ₹55,000. Overnight, sales dropped drastically—customers delayed purchases, opted for older models, or switched brands.

❌ Raj realized that demand for smartphones was HIGHLY ELASTIC!

• People had many substitutes (cheaper phones, used phones, repairs).
• They could wait for discounts or sales.

📊 In Perfectly Elastic Demand (PED = ∞)
Even the slightest price increase drives demand to zero because consumers have endless alternatives.

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💊 Amit’s Price Hike – No Effect!

Amit, on the other hand, raised the price of an essential life-saving medicine from ₹1,000 to ₹1,200. But sales remained unchanged!

Why?
✅ The medicine had no close substitutes.
✅ It was a necessity—people had to buy it, no matter the price.

📊 In Perfectly Inelastic Demand (PED = 0)
Even a huge price increase has no impact on demand because the product is indispensable.

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🎯 The Lesson?

🚀 Luxury or non-essential goods = Elastic demand → Price-sensitive customers.
🚀 Essential goods or monopolies = Inelastic demand → People buy no matter what.

Raj, learning his lesson, focused on competitive pricing and discounts. Amit, realizing his advantage, kept prices stable to maintain goodwill.

And so, Econoville taught the world the power of price elasticity!

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Key Takeaways:

✅ Perfectly Elastic Demand (PED = ∞): Small price change = Demand drops to zero! (E.g., branded electronics, luxury items).
✅ Perfectly Inelastic Demand (PED = 0): Price change = No change in demand! (E.g., life-saving drugs, essential utilities).
✅ Know your product’s elasticity before setting prices!