Elastic demand
Also called: Relatively elastic demand, Price elastic demand · Topic: Consumer Behaviour, Demand and Elasticity · NCERT: Class 12, Ch 2 "Theory of Consumer Behaviour"
Meaning
Demand is elastic when the percentage change in quantity demanded is bigger than the percentage change in price. In other words, |eD| > 1. Here eD = % change in quantity demanded ÷ % change in price. When demand is elastic, total spending on the good moves opposite to price: a price cut raises spending and a price rise lowers it. Luxuries and goods with close substitutes usually have elastic demand.
Example
A 10% price cut raises the quantity bought by 15%, so spending on the good rises. Festival sales and online sales cut prices on electronics and apparel for this reason. Buyers of these goods respond strongly, so sellers earn more revenue.
Don't confuse with
- Perfectly elastic demand: here |eD| is infinite and the demand curve is horizontal. Ordinary elastic demand is only greater than 1.
- Flat slope: a flatter curve does not by itself mean demand is more elastic.
Related concepts
- Price elasticity of demand
- Inelastic demand
- Unitary elastic demand
- Perfectly elastic demand
- Perfectly inelastic demand
- Elasticity along a linear demand curve
- Geometric measure of elasticity of demand
- Rectangular hyperbola
- Determinants of price elasticity of demand
- Elasticity and expenditure