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Elastic demand (ε > 1). Change in demand is larger than change in price.

Inelastic demand (ε < 1). Change in demand is a smaller number than change in price.

Unit elastic demand (ε = 1). This is where the price and quantity demanded change by the same proportion.

Determinants of price elasticity of demand:

1. 
   The number of substitute goods;
   
2. 
   The proportion of income spent on the good.
   

The larger the number of substitute goods and the proportion of income spent on a good, the greater will be the price elasticity of demand. For example, salt has a very low price elasticity of demand, but if mortgage interest rates rise (the ‘price’ of loans for house purchase), people may have to cut down on their demand for housing.

3. 
   The time period. When price rises, people may take time to find alternatives. The longer the time period after a price change, the more elastic the demand is likely to be.
   

To illustrate this, let us return to our example of oil. Between December 1973 and June 1974 the price of crude oil quadrupled, which led to similar increases in the prices of petrol and other oil products. Over the next few months, there was only a very small fall in the consumption of oil products. Demand was highly inelastic (people still wanted to drive their cars).
Over the time, however, as the higher prices persisted, many people switched to smaller cars. Demand was thus much more elastic in the long run.

2. Responsiveness of demand to changes in income

In addition to price elasticity of demand (Pε_d) there is also income elasticity of demand (Yε_d.). The letter Y is used for income because letter I is already used for ‘investment’). This measurement enables us to predict how much the demand curve will shift for a given change in income. The formula is as follows: