key term - Vertical Demand Curve

Definition

A vertical demand curve is a type of demand curve that is perfectly inelastic, meaning that the quantity demanded does not change in response to changes in price. This indicates that the good or service has no close substitutes, and consumers will purchase the same quantity regardless of the price.

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 associated with goods or services that have no close substitutes, such as essential medications or public utilities.
3. The elasticity of demand along a vertical demand curve is zero, meaning that the percentage change in quantity demanded is zero for any percentage change in price.
4. Vertical demand curves are an example of a polar case of elasticity, where demand is perfectly inelastic.
5. Constant elasticity demand functions can produce vertical demand curves when the elasticity parameter is set to zero.

Review Questions

• Explain how a vertical demand curve relates to the concept of inelastic demand.
  • A vertical demand curve is the graphical representation of perfectly inelastic demand, where the quantity demanded does not change in response to changes in price. This means that the elasticity of demand is zero, indicating that consumers will purchase the same quantity regardless of the price. Inelastic demand is characterized by a low responsiveness of quantity demanded to changes in price, and a vertical demand curve is the extreme case where demand is completely unresponsive to price.
• Describe the relationship between a vertical demand curve and the concept of constant elasticity.
  • Constant elasticity demand functions can produce a vertical demand curve when the elasticity parameter is set to zero. This means that the elasticity of demand remains the same at all points along the demand curve, and in the case of a vertical demand curve, the elasticity is perfectly inelastic (zero). The constant elasticity demand function allows for the modeling of different degrees of responsiveness to price changes, with a vertical demand curve representing the polar case where demand is completely unresponsive to price.
• Evaluate the factors that might contribute to the formation of a vertical demand curve in the context of the polar cases of elasticity.
  • The formation of a vertical demand curve is associated with the polar case of perfectly inelastic demand, where consumers will purchase the same quantity regardless of the price. This can occur when a good or service has no close substitutes, such as essential medications or public utilities. In these cases, consumers have a critical need for the product and cannot easily switch to alternatives, leading to a vertical demand curve. The lack of substitutes is a key factor that contributes to the development of a vertical demand curve, as it eliminates the possibility of consumers adjusting their consumption in response to price changes, resulting in the polar case of perfectly inelastic demand.

Related terms

Inelastic Demand:

Inelastic demand refers to a situation where the quantity demanded of a good or service changes less than proportionally to a change in its price.

Constant Elasticity:

Constant elasticity is a property of demand functions where the elasticity of demand is the same at all points along the demand curve.

Polar Cases of Elasticity: Polar cases of elasticity refer to the two extreme cases of demand elasticity: perfectly elastic demand and perfectly inelastic demand.