Difference between Elastic and Inelastic Demand

Elastic Demand and Inelastic Demand refer to how sensitive the quantity demanded of a good or service is to changes in its price. When demand for a product is elastic, it means that changes in price result in relatively larger or equal changes in quantity demanded. However, when demand for a product is inelastic, it means that changes in price result in relatively smaller or no changes in quantity demanded.

What is Elastic Demand?

Elastic Demand is when price changes result in relatively larger changes in quantity demanded. In other words, consumers are very responsive to price changes. If the price of an elastic product increases, consumers tend to decrease their quantity demanded significantly, and if the price decreases, they tend to increase their quantity demanded significantly.

For example, luxury items, non-essential goods, and products with close substitutes have elastic demand.

Features of Elastic Demand:

Price Sensitivity: In elastic demand, consumers are highly sensitive to changes in price. Even slight price changes can lead to significant changes in the quantity demanded.
Availability of Substitutes: Elastic Demand occurs when there are many substitutes available for the product. Consumers can easily switch to alternative products if the price of the current product changes.
Luxury or Non-Essential Goods: Elastic Demand is commonly associated with luxury or non-essential goods, where consumers have the flexibility to adjust their consumption based on price changes without significantly impacting their well-being.
Flatter Demand Curve: The demand curve for elastic goods is relatively flat, indicating that changes in price lead to proportionally larger changes in quantity demanded.
Elasticity Coefficient Greater than 1: The price elasticity of demand coefficient (PED) for elastic goods is greater than 1. This indicates that the percentage change in quantity demanded is greater than the percentage change in price.

What is Inelastic Demand?

Inelastic Demand is when changes in price result in relatively smaller changes in quantity demanded. In other words, consumers are not very responsive to price changes. If the price of an inelastic product increases, consumers may still purchase roughly the same quantity, and if the price decreases, they may not significantly increase their quantity demanded.

For example, essential goods like food, medications, and utilities, where consumers have limited alternatives or immediate needs have inlastic demand.

Features of Inelastic Demand:

Price Insensitivity: In inelastic demand, consumers are relatively insensitive to changes in price. Even significant changes in price may result in minor changes in the quantity demanded.
Few or No Substitutes: Inelastic Demand occurs when there are few or no substitutes available for the product. Consumers have limited options to switch to if the price of the product changes.
Necessities or Essential Goods: Inelastic Demand is commonly associated with necessities or essential goods, such as food, medications, and utilities, where consumers must purchase them regardless of price changes.
Steep Demand Curve: The demand curve for inelastic goods is relatively steep, indicating that changes in price lead to proportionally smaller changes in quantity demanded.
Elasticity Coefficient Less than 1: The price elasticity of demand coefficient (PED) for inelastic goods is less than 1. This indicates that the percentage change in quantity demanded is less than the percentage change in price.