Price Elasticity Of Demand
The concept of elasticity of demand is one of the major topics in economics. Demand further divided into inelastic, elastic, and unitary. The elasticity of demand, defined as the degree of which demand and supply respond as per change in other factors such as substitutes availability, income level, price, and others. Inelasticity of demand occurs when there is no change in quantity demanded due to a change in the price of the commodity within a specific period of time. The demand for luxurious commodities is elastic because of infrequent change purchases of commodities. Similarly, a change in price results in a change in quantity demanded. Its impacts on the revenue generation of the organization.
Elastic demand defined as the degree of change in demand in response to a change in price. However, there is not always proportionate to the change in price. The change in price results in a change in demand. On the other hand, the change in price followed by no change in quantity demanded. Elastic demand is the substantial change in quantity demanded due to change in the price of a commodity. It is one of the most important concepts of economics that require a clear understanding of determining the impact of change in price on the quantity of the commodity.
The demand is elastic when there is a decrease in price result in an increase in total spending and revenue of the seller. So the percentage change in quantity demanded is greater than the percentage change in price. Further when the price decrease and in a very less proportional increase in quantity demanded results in an increase in the total outlay of the buyer. The demand is elastic when it is greater than 1 (unity). When the percentage change in price is compensating per magenta change in quantity demanded.
Elastic demand is the demand where change in price results into a change in quantity demanded. It refers to the change in quantity demanded of commodity due to other factors on which quantity depends. Change in demand due to a change in price known as elastic demand. This is also known as price-sensitive demand. There is little change in the price of a commodity that has a greater change in quantity demanded by the customers. If there is a change in price, then the consumer will stop purchasing commodity and further shift to substitute. Whereas, a decrease in price results in an increase in demand so that more quantity demanded is increased.
Change in demand due to the change in demand that is also known as price-sensitive demand. A small change in price result into a greater change in quantity demanded. For example, if the price of commodity changed the result in change in quantity demanded. On the other hand, there is a decrease in price then the consumer will start buying more quantity result into an increase in quantity demanded. It also attracts more customers result into increase in quality demanded.
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There is a decrease in the total revenue of the seller when the demand is inelastic. In this case, the percentage change in quantity demanded is less than the percentage change in price. There are various variables of price such as income, price of complementary goods, price of substitute goods, and others. The price of demand is the degree of responsiveness of a commodity with respect to change in price.
Inelastic demand is the situation where the demand for a commodity doesn’t change due to a change in price. In this situation the demand for a commodity is insensitive. The inelastic demand is majorly for the commodity that is necessary such as salt, petrol, and others. The commodity for which consumers addicted such as cigarettes, liquor, and others. The demand of inelastic goods affected by the price. There is no major change in the quantity demanded due to a change in demand.
Inelastic demand refers to no change in quantity demanded due to a change in the price of the commodity. The determinants of demand are low due to the nature of consumption. The necessities goods have inelastic demand due to the nature of consumption. The quantity demanded not impacted due to the change in price. Demand can’t be completely insensitive to the change in price.
Inelastic goods are those where an increase in price results in an increase in total revenue. The change in price by increasing results into a decrease in quantity demanded. The overall effect increased in total revenue. However, the extreme revenue from selling units at a high price results in a decline in revenue.
Significant Difference In Elastic And Inelastic Demand
Meaning: In elasticity of demand, there is little change in the price of commodity due to substantial change in quantity demanded. Whereas, in inelastic demand, there is a change in the price of goods due to little change in quantity demanded.
Elasticity Quotient: In elastic demand, there is more than equal to 1 elastic quotient and where is in inelastic demand there is less than 1.
Price And Total Revenue: In elastic demand, the total revenue and price move in the opposite direction and in Inelastic demand both moved in the same direction.
Curve : There is a shallow curve in elastic demand and there is steep in inelastic demand.
Goods : The luxury and comfort goods have elastic demand and necessity goods have an inelastic demand.
The elastic demand occurs when there is a small change in the price of the commodity and it has a greater impact on the quality demanded. Whereas, in the case of inelastic demand the quantity demanded doesn’t impact by the change in demand.
The elasticity of demand formula – percentage change in the quantity demanded divided by percentage change in price. If the coefficient of elasticity of demand is more than one, then the demand is elastic and if the demand is less than one then it is inelastic.
The curve of elastic demand is shallow and in the case of inelastic demand, the slope is steep.
In the case of elastic demand, the total revenue and price move in opposite direction whereas in the case of inelastic demand both move in the same direction.
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