The market price of any products changes following various factors and demands related to the goods. There is certain fixed terminology for such a situation of the market in terms of economics.
It varies with the demand of customers which leads to the deviation of the market price. The different types of market deviation lead to various types of demands.
- Elastic demand occurred when the quantity demanded changes significantly in response to price changes, while inelastic demand shows little or no change.
- Necessities and goods with few substitutes have inelastic demand, while luxury items and goods with many substitutes have elastic demand.
- Elastic demand is more responsive to economic conditions and marketing efforts than inelastic demand.
Elastic vs Inelastic Demand
An elastic demand is a change in demand when the change in quantity demanded is larger than the change in the economic factor such as price or income. An inelastic demand is the change in demand in which the change in quantity demanded is less than the change in price or income.
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Elastic demand refers to a great change in the demand of quantity with an increase and decreases price in the market of its goods. This type of demand varies frequently as being elastic.
The customer demand varies with the economic change of the products which leads to a steep curve in the graph of elastic demand.
Inelastic demand directs the demand where there does not lead any change or a very slight change in the goods and products demand during a varied change in the price.
The factors that affect the demand cause less impact because of the frequency and nature of consumption of the goods by the consumers. The type of product is an important part of the variation of change.
|Parameters of Comparison||Elastic||Inelastic Demand|
|Definition||The small variation in the price of the products results in a big change in the demand of the quantity.||The variation in the economic factors of the goods does not lead to any such change in the quantity demand.|
|Curve shape||The graph depicts a shallow curve as the demand changes with its variation.||The graph shows a steep curve since it does not create any change in its demand.|
|Coefficient of Elasticity||The elastic demand has an elastic quotient that is more than or equal to one.||The value of the elastic quotient is less than one in the case of inelastic demand.|
|Total revenue and price||It represents the revenue in opposite directions in the graph.||Inelastic demand represents the revenue and price in the same direction in the curve.|
|Commodities nature||It holds goods that are luxurious and make us feel the comfort of the items.||It includes items that are necessary for an individual in daily use and is considered a necessity.|
What is Elastic?
Elastic demand is a kind of situation in the economic market which means that a minor change in the price of a product can lead to a larger change in the quantity desired by customers.
Considering the situation as the price of a product rises which generally represents that buyers will stop buying that goods or commodity.
The consumers will tend to switch to alternatives or buy a minimum amount of that product and also delay its process of buying till its prices return to the normal fare.
On the other side, if the price of a commodity declines, it will catch the attention of the customers towards the item and buyers will begin to buy more of the product.
This elastic type of demand generally occurs in luxurious kinds of items that people do not use daily neither its a necessity. The demand is elastic because of the infrequent purchase and consumption of such items.
The purchase of such items varies at its extremes.
When the price increases, the demand decreases while on the contrary when the price decreases of the product there is a huge rise in the demand of the quantity.
It means that there is no constant rate of buying rather it causes variation in regards to price factor and situation.
What is Inelastic Demand?
When demand for a specific product or service does not fluctuate in response to variations of the price in the market, it is said to be inelastic. This type of demand does not rely on the variation of price and is not particularly price sensitive.
The things that have inelastic demand which consists of necessary items such as water, salt, soap, fuel, etc., or the items in which people holds addiction such as booze, cigarettes, etc., or the goods that cannot be replaced by its alternatives such as medications, are considered essentials.
When demand for a product is inelastic, it does not depend on how much there is a rise in price as people will continue to buy it.
Similarly, if the price declines, the quantity desired by consumers will not vary significantly as the items fall in the category are essential items.
Quantity demand variation will be low or non-existent concerning a price change in inelastic demand. Graphically it will represent a steep curve as there is negligible change in demand.
The total price and revenue do not change much and it remains in the same direction because whatever the economic situation remains the consumer’s demand stays constant in the graph. This depicts the coefficient of elasticity as less than one.
Main Differences Between Elastic and Inelastic Demand
- Elastic demand refers to a substantial change in the demand of quantity when the economic factors vary while inelastic demand refers to a null or negligible change in consumer’s quantity demand when the price range varies.
- The elastic quotient of elastic demand is more than or equal to one whereas inelastic demand holds an elastic coefficient that is less than one.
- The total revenue and price of elastic demand move in opposite direction but in inelastic demand the revenue and price moves in the same direction.
- The elastic demand includes commodities that are luxurious while inelastic demand applies to items that are essentials for living.
- The elastic demand curve is shallow whereas the inelastic demand curve is steep.
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.