Business

Difference between Elastic and Inelastic Demand




  • Main Difference

    When we talk about business, one thing always gains significance, and that is the scope of a product in the market. If people want to buy it more, then they will supply faster, if people do not like it, the product becomes extinct. The two terms getting discussed here have the same purposes and tell us about the things mentioned above but have many differences. Elastic demand gets defined as how critical the requirement for something becomes according to the changes taking place within the society on an economic basis. Inelastic demand gets defined as how vague the need for something becomes according to the changes taking place within the community on an economic basis.

    Comparison Chart

    Basis of Distinction Elastic Demand Inelastic Demand
    Definition How critical the requirement for something becomes per the changes taking place within the society on an economic basis. How vague the need for something becomes per the changes taking place within the community on an economic basis.
    Usage Change in demand has a close relationship with the price set by the company. Change in the market does not have a strong relationship with the price fixed by the corporation.
    Example When the price of petrol increases, the demand becomes less, when the price becomes less the demand increases. When the price of milk increases or when it decreases, the demand stays the same as people consume it daily.
    Formula The total change in the amount of good required by the consumer and divide it by the total change in the variables in the economy. Same.

     

    Elastic Demand

    Elastic demand gets defined as how critical the requirement for something becomes according to the changes taking place within the society on an economic basis. This type of comparison includes the price of a product and the income of the person who has to buy that product. The different survey takes place so that a proper idea as for how too much product comes in demand, what should be the right amount set, and how much a person will be willing to pay for that product. A process of calculating this value exists, where you take the total change in the amount of good required by the consumer and divide it by the total change in the variables in the economy. When the demand becomes higher, it means that the customer has more interest and therefore may want to pay more. If the request gets less, it means that people do not want to pay more for the item and hence, the prices become lower. Two types of such terms exist, the first has the name of price elasticity of demand where we divide the quantity with the changes of the price to get the idea of its value. The second one becomes known as the cross-demand elasticity, that tells us how much the public reacts to the changes when we divide the quantity with the price. The value always comes out positive, even if the sign says otherwise, it mostly gets ignored and therefore becomes known as elastic as it will keep on changing.

    Inelastic Demand

    Inelastic demand gets defined as how vague the requirement for something becomes according to the changes taking place within the society on an economic basis. For example, the need for something has decreased by 5 percent even when the price has gone up to 20 percent then we say that the changes are inelastic. Another way of making it distinctive becomes that the situation where the quantity of the item required does not have any effect when the price changes. It means that people want to pay more even when the amount increases and therefore the trend becomes positive for the companies. To elaborate it more, when one percent of price changes and the demand does not go beyond less than one percent then the term stays inelastic. But when one percent of price changes and the market extends beyond less than one percent then the object remains stable. When the market does not have much requirement for a new item, then the old ones has the edge over others since it has the power of changing the price and managing everything around with the competitors. As long as people want to pay more, then they have the chance of increasing the cost even more. For cases, when the price increases and the demand decreases, or vice versa then the elastic demand comes into contention. These types of tests keep on going throughout the year to get a basic idea of people’s nature in a working market.

    Key Differences

    • Elastic demand gets defined as how critical the requirement for something becomes per the changes taking place within the society on an economic basis. Inelastic demand gets defined as how vague the need for something becomes per the changes taking place within the community on an economic basis.
    • When the change of the request has a close relationship with the price set by the company, then we call such a product elastic. On the other hand, when the shift in demand does not have a close relationship with the price set by the company then we call such a product inelastic.
    • The best example of the elastic product becomes petrol when the price increases the demand becomes less when the price becomes less the demand increases. The best example of the inelastic product becomes milk, when the price increases or when it decreases, the demand stays the same as people consume it daily.
    • The formula for both the values becomes the same as the total change in the amount of good required by the consumer and divide it by the total change in the variables in the economy.
    • The elastic product becomes known as less feasible for the companies whereas inelastic product becomes favorable for the enterprise as they increase or decrease the price without any hesitations.

    Video Explanation