# What is elasticity of demand?

cburr | Certified Educator

As noted in the other answer, the elasticity of demand is a measure of how much the demand for a product changes when the price changes.

If the demand for a product is very ELASTIC, it will change alot as the price changes.  So, if the price drops, lots more people will buy it because the price is lower.  If the price rises, lots of people will decide not to buy because the price is too high.  As you can see, elastic demand is for products that people like but don't have to have.

If the demand for a product is very INELASTIC, it won't change much even if the price changes.  For example, if something is very unappealing because it is super ugly or very pricey to maintain, the demand will be inelastically low -- no matter what you do to price, people won't want to buy it.  On the other hand, if there is something people really need and there's only one source -- such as a medicine still under patent -- they are likely to buy it even if the price goes up as long as they can scrape together the money.

dbello | Certified Educator

Elasticity of demand is a demand relationship in which a any given percentage change in price will result in a larger percentage change in the quantity demanded. The more demand expands or contracts after a price change the greater the elasticity. For example, if a 'goods' has a close substitute such as chicken substituted for steak the steak is 'elastic'. If the price for steak goes up consumers can choose something else to satisfy their dinner meal. However to fully understand elasticity of demand an example of inelasticity of demand is needed. Milk is usually said to be inelastic because there is no close substitute. ( it is true there is powdered and condensed milk but these 'goods' are not powerful enough to affect demand for milk) If the price of a gallon of milk goes up consumers will still purchase the milk. Usually consumer reasoning boils down to a decision about luxury verses necessity.

krishna-agrawala | Student

The price elasticity of demand, sometimes simply called price elasticity, measures how much the quantity demanded of a good changes when its price changes. The precise definition of price elasticity is:

The percentage change in quantity demanded divided by the percentage change in price.

ED = (percentage change in quantity demanded) / (percentage change in price)

Economic factors determine the size of price elasticities of individual goods. Elasticities tend to be higher when the goods are luxuries, when substitutes are available, and when consumers have more time to adjust their behavior.

When ED > 1, the good has price-elastic demand. In this case a price decrease increases total revenue.

When ED < 1, the good has price-inelastic demand. In this case a price decrease decreases total revenue.

When ED = 1, the good has unit-inelastic demand. Under this condition total revenue stays the same even when the price changes.

When ED = 0, the demand is completely inelastic.

When ED is infinite the demand is completely elastic. Even the tiniest change in price causes a huge change in quantity demanded, so huge that, for all intents and purposes, we can call the response infinite. When demand is perfectly elastic, then no matter how much people are buying, the demand curve will be a horizontal line. The demand for a single brand of salt may fall into this category.

forrestk | Student

In economics, the elasticity of demand is how much the quantity demanded changes when there is a change in price. This is normally measured in a percentage.

malkaam | Student

Elasticity of demand is the measure of responsiveness of demand to changes taking place in any of the factors that affect demand. For eg, a change in price generally leads to a change in quantity demanded. This characteristic of demand by which it stretches or contracts under the pressure of a change in price is known as Elasticity of Demand.

We can also say that Elasticity refers to the degree of correlation between demand and any factor that affects it. There are various types of elasticity of demand, some important ones are:

• Price Elasticity of Demand: refers to the rate of change in quantity demanded as response to change in price of a product.
• Income Elasticity of Demand: refers to a rate of change in quantity demanded as a result of change in income of a consumer.
• Price Cross Elasticity of Demand: refers to the elasticity that arises in the case of inter related goods, i.e when the change in price of one good effects the quantity demanded of another.
goutham | Student

As noted in the other answer, the elasticity of demand is a measure of how much the demand for a product changes when the price changes.

If the demand for a product is very ELASTIC, it will change alot as the price changes.  So, if the price drops, lots more people will buy it because the price is lower.  If the price rises, lots of people will decide not to buy because the price is too high.  As you can see, elastic demand is for products that people like but don't have to have.

If the demand for a product is very INELASTIC, it won't change much even if the price changes.  For example, if something is very unappealing because it is super ugly or very pricey to maintain, the demand will be inelastically low -- no matter what you do to price, people won't want to buy it.  On the other hand, if there is something people really need and there's only one source -- such as a medicine still under patent -- they are likely to buy it even if the price goes up as long as they can scrape together the money.

goutham | Student

The price elasticity of demand, sometimes simply called price elasticity, measures how much the quantity demanded of a good changes when its price changes. The precise definition of price elasticity is:

The percentage change in quantity demanded divided by the percentage change in price.

ED = (percentage change in quantity demanded) / (percentage change in price)

Economic factors determine the size of price elasticities of individual goods. Elasticities tend to be higher when the goods are luxuries, when substitutes are available, and when consumers have more time to adjust their behavior.

When ED > 1, the good has price-elastic demand. In this case a price decrease increases total revenue.

When ED < 1, the good has price-inelastic demand. In this case a price decrease decreases total revenue.

When ED = 1, the good has unit-inelastic demand. Under this condition total revenue stays the same even when the price changes.

When ED = 0, the demand is completely inelastic.

When ED is infinite the demand is completely elastic. Even the tiniest change in price causes a huge change in quantity demanded, so huge that, for all intents and purposes, we can call the response infinite. When demand is perfectly elastic, then no matter how much people are buying, the demand curve will be a horizontal line. The demand for a single brand of salt may fall into this category.

goutham | Student

Elasticity of demand is a demand relationship in which a any given percentage change in price will result in a larger percentage change in the quantity demanded. The more demand expands or contracts after a price change the greater the elasticity. For example, if a 'goods' has a close substitute such as chicken substituted for steak the steak is 'elastic'. If the price for steak goes up consumers can choose something else to satisfy their dinner meal. However to fully understand elasticity of demand an example of inelasticity of demand is needed. Milk is usually said to be inelastic because there is no close substitute. ( it is true there is powdered and condensed milk but these 'goods' are not powerful enough to affect demand for milk) If the price of a gallon of milk goes up consumers will still purchase the milk. Usually consumer reasoning boils down to a decision about luxury verses necessity.

rsheats | Student

The definition of the price of the elasticity of demand is the measure of the responsiveness of quantity demanded to a charge in price, with all other factors held constant.