The Price System, Demand and Supply, and Elasticity. The Price System: Rationing and Allocating Resources. The market system, performs two important and closely related functions:
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The Price System, Demand and Supply, and Elasticity
When demand does not respond at all to a change in price, demand is perfectly inelastic.
Demand is perfectly elastic when quantity demanded drops to zero at the slightest increase in price.
Here is how to interpret two different values of elasticity: