Elastic vs Inelastic Demand

Differences Between Elastic and Inelastic Demand

Elastic demand refers to the adverse change in the quantity of a product on account of the minute changes in the price of that particular product and it denotes how demand and supply respond to each other due to price, income levels, etc whereas inelastic demand signifies the demand for a particular product or service that remains constant and remains unaffected with the changes in price.

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In economics two of the most basic terms are supply and demand and the entire subject revolves around them. In this article, we will discuss one type of classification of demand, namely elastic demand and inelastic demand. This type of classification is based on the elasticity of demand which refers to how the demand reacts to a change in another factor which can be price, income level, or any other substitute available. However, the price is the most commonly used factor used to illustrate elasticity and as such we will also use it for this article. The measure of elasticity of demand based on price is called price elasticity which is determined by dividing the percentage change in quantity (∆Q/Q) by percentage change in price (∆P/P) which is represented as

Formula
price & quantity demand - diagram

Elastic demand for a product is a situation in which a slight change in the price of the product will lead to an appreciable change in the demand for the product and such a scenario is observed when there is a substitute. Let us take the example of tea and coffee where both are the substitute for each other. Say, people prefer coffee over tea when the price of coffee is lower than that of tea. However, as the price of coffee increases more and more people start to shift to tea and vice versa. This situation is a perfect example of an elastic demand for a product. The price elasticity of demand for the elastic product is more than equal to one as the percentage change in demand is greater than the percentage change in price.

Inelastic demand for a product is a situation in which any significant change in the price of the product doesn’t result in any appreciable change in the demand for the product and such a scenario is observed when there is no or very few good substitutes for the product. Let us take the example of gasoline/petrol which is one of the best example of inelastic demandExample Of Inelastic DemandInelastic demand refers to the minor change in the demand of the quantity or behaviour of consumers with a change in the product's price. Common examples of inelastic demand are gas and fuel, electricity, and consumer goods.read more.

Quantity demand - diagram 1

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Now when the price of gasoline increases, the impact on the demand for gasoline is insignificant as it doesn’t decline much. This is due to the fact that there are very few good substitutes for gasoline and as such consumers have to buy the gasoline even at relatively higher prices. This situation is an example of an inelastic demand for a product. The price elasticity of demand for the inelastic product is less than one as the percentage change in demand is less than the percentage change in price.

Elastic vs Inelastic Demand Infographics

Let’s see the top differences between elastic vs inelastic demand.

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Key Differences

Elastic vs Inelastic Demand Comparative Table

Basis for Comparison Elastic DemandInelastic Demand
MeaningIt is the type of product demand which experiences significant change when there is any slight change in the price of the productIt is the type of product demand which is quite sluggish/sticky to a change in the price of the product
Elasticity QuotientMore than equal to one as the change in quantity demandedQuantity DemandedQuantity demanded is the quantity of a particular commodity at a particular price. It changes with change in price and does not rely on market equilibrium.read moreQuantity demanded is the quantity of a particular commodity at a particular price. It changes with change in price and does not rely on market equilibrium.read moreQuantity demanded is the quantity of a particular commodity at a particular price. It changes with change in price and does not rely on market equilibrium.read more is greater than the change in priceLess than one as the change in quantity demanded is less than the change in price
CurveThe shape of the curve is slightly flatterThe shape of the curve is relatively steeper
Availability of SubstituteVery easily availableFew to no substitute available
Increase in PriceThe decrease in total revenueIncrease in total revenue
Decrease in PriceIncrease in total revenueA decrease in total revenue
Nature of ProductsIt is applicable for products in the luxury and comfort segmentIt is applicable for necessary products
Consumer BehaviourMore sensitive to the price change of productsLess sensitive to the price change of products
Customer ProfileCustomer from lower income groupCustomer from a higher-income group.

Conclusion

The elasticity of demand is a metric to measure the impact of variation of the price of a product on the quantity demanded by consumers. The products with no or few substitutes exhibit inelastic demand while the products with an easily available large number of substitutes display an elastic demand since the consumers have the option to switch to other substitutes when there is any change in the price of the product. Also, the necessary product segment will exhibit inelastic demand while luxury and comfort products will have demand which is elastic in nature. Hence, it can be said that the primary driver of the elasticity of demand is the availability of substitutes and the necessity of the product for the survival of the population.

This has been a guide to Elastic vs Inelastic Demand. Here we discuss the top differences between them with infographics and comparative table. You may also have a look at the following articles –

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Comments

  1. Karan says

    Really helpful and good informative content thanks

    • Dheeraj Vaidya says

      Thanks for your kind words!

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