An elastic demand is one in which a slight change in the price will lead to drastic change in the demand for the product. It differs from an inelastic demand in the sense that a change in price may have no or little effect on the demand of consumers.
The elasticity of demand refers to the change in the quantity demanded of a product, due to the change in factors on which demand depends. Such variables are price, the price of related goods, income and so on. Unless and otherwise specified, price elasticity is termed as the elasticity of demand, which is the degree of responsiveness of a product with respect to the change in price. It can be elastic or inelastic for a particular commodity.
Elastic vs Inelastic Demand
Four main types of elasticity
Most often, people refer to price elasticity when discussing whether a product has inelastic or elastic demand. However, economists also study other types of [elasticity](https://www.indeed.com/career-advice/career-development/formula-for-elasticity-of-demand). Here are the four types of elasticity in economics:
What is economic demand?
Demand is a feature of economics that refers to consumer willingness or desire to purchase a product or service. Predicting demand has many factors, including price, availability and exclusivity. Further variations occur between target markets with different behaviors and income levels.
What is inelastic demand?
Calculating inelastic demand
Economists calculate inelastic demand by first selecting a product. They divide the percentage of change in the number of items sold by the percentage of change in the price. When changes in quantity reflect the same percentage rate as the change in price, the demand ratio is equal to 1%. Products with inelastic demand have a percentage change less than 1%. For example, if the price of an item rises by 15% and the change in buying habits only decreases by 2%, the demand ratio is less than 1%.
Examples of products with inelastic demand
Products or services with inelastic demand are those that are necessary for survival or a persons basic needs. The buying habits relative to these products dont change much in relation to price usually because consumers have little alternative. Some items that make the list are not basic necessities, and demand is inelastic because of the unique social value attributed to scarce or coveted items. An example of this would be diamonds.
Here is a list of items or services with inelastic demand:
What is elastic demand?
Elastic demand is a situation in which price has a great impact on a product. Price is a key economic factor in demand, but the way it affects the buying of individual goods or services varies. A slight change in price can result in drastic changes in demand and consumption. Like a rubber band, the demand stretches and changes shape very easily.
Calculating elastic demand
When the price of an item with an elastic demand changes, the rate at which consumers buy that item changes, too. Economists calculate elastic demand by dividing the percentage of change in the quantity of items sold by the percentage of change in price.
When these two percentages change at the same rate, the demand ratio is equal to 1%. Products with elastic demand are those whose demand ratio is equal to 1% or greater. For example, if the price of an item drops by 10% but its demand rises by 25%, the demand ratio is greater than 1%.
Examples of products with elastic demand
Elastic goods typically have lots of substitutes. They are often luxury items, services or plans. Some products with elastic demand, like foods or toiletries, make the list because of the number of options available. For example, if the cost of one deodorant brand goes up, consumers are likely to switch brands. In this instance, demand goes down.
Here is a list of products or services that typically yield elastic demand:
What is the difference between inelastic and elastic demand?
The difference between inelastic and elastic demand lies in how easily things can impact consumer habits. Try to visualize something that is elastic, like a rubber band, and something that is inelastic, like twine. You can stretch and change rubber band with little effort. The same is true of elastic demand in economics. A slight change in something like price or supply yields significant changes in demand.
If you were to exert the same amount of effort on a piece of twine, it would not stretch nearly as much as the rubber band. Like twine, inelastic demand doesnt change much when fluctuations occur.
What are the factors that impact elasticity?
Economic demand varies as circumstances, availability and social norms fluctuate. Here are five factors that can affect the demand elasticity of products or services:
What is the difference of elastic and inelastic?
What is the difference between perfectly elastic and perfectly inelastic?
What is the difference between elastic and inelastic quizlet?