Vertical Demand Curve

Definition

A vertical demand curve is a special case of demand elasticity where the quantity demanded is completely unresponsive to changes in price. This means that the quantity demanded remains constant regardless of the price level, resulting in a perfectly inelastic demand curve.

5 Must Know Facts For Your Next Test

1. A vertical demand curve indicates that the quantity demanded is completely unresponsive to changes in price.
2. Vertical demand curves are a polar case of demand elasticity, representing perfectly inelastic demand.
3. With a vertical demand curve, the quantity demanded remains constant regardless of the price level.
4. Vertical demand curves are often observed for essential goods and services with no close substitutes.
5. Constant elasticity demand curves, including vertical demand curves, are linear on a log-log graph.

Review Questions

• Explain how a vertical demand curve relates to the concept of demand elasticity.
  • A vertical demand curve represents the polar case of perfectly inelastic demand, where the quantity demanded does not change at all in response to changes in price. This means the elasticity of demand is zero, as the percentage change in quantity demanded divided by the percentage change in price is equal to zero. A vertical demand curve indicates that consumers' demand for the good is completely unresponsive to price changes, which is a key characteristic of the concept of demand elasticity.
• Describe the relationship between a vertical demand curve and the concept of constant elasticity.
  • Constant elasticity refers to a situation where the elasticity of demand remains the same regardless of the price level, leading to a linear demand curve on a log-log graph. A vertical demand curve, which is a special case of constant elasticity, represents perfectly inelastic demand where the elasticity is constant at zero. This means that the quantity demanded does not change at all in response to price changes, resulting in a straight, vertical line on the demand graph. The constant elasticity of a vertical demand curve is a key feature that connects this concept to the broader topic of demand elasticity.
• Analyze the real-world implications of a vertical demand curve and how it might be observed in various markets.
  • A vertical demand curve indicates that consumers have an absolute need for a good and have no close substitutes available. This is often the case for essential goods and services, such as life-saving medications, public utilities like water and electricity, or goods with no readily available alternatives. In these markets, consumers will continue to demand the same quantity of the good regardless of price changes, as they have no choice but to purchase the good. The presence of a vertical demand curve suggests that producers in these markets have significant pricing power and can potentially charge higher prices without affecting the quantity demanded, which has important implications for market dynamics and consumer welfare.

Related terms

Demand Elasticity: Demand elasticity refers to the responsiveness of quantity demanded to changes in price. It is measured by the percentage change in quantity demanded divided by the percentage change in price.

Perfectly Inelastic Demand: Perfectly inelastic demand occurs when the quantity demanded does not change at all in response to changes in price, resulting in a vertical demand curve.

Constant Elasticity:

Constant elasticity refers to a situation where the elasticity of demand remains the same regardless of the price level, leading to a linear demand curve on a log-log graph.