the notable demand alteration that occurs when an economic factor - such as the price of the good or service - changes.
Elastic Demand Details
Elastic demand, as mentioned above, is the considerable change in the consumption of a good or service in relation to the variation of its price. This concept is used to understand how the demand changes when the price changes. While some products have very elastic demand, other goods and services have an inelastic one—little to no change in demand occurs when price changes.
When a product has an elastic demand, any alteration in its price will cause a shift in the market's quantity. Even the slightest change in a product's price can lead to enormous changes in a good or service's demand, and that's something every company wants to avoid. Overall, elastic demand is a characteristic of products that are considered luxuries (which means consumers don't need them daily) or made by different brands and susceptible to price comparison.
The elastic demand concept is related to the "law of demand," which conducts the correlation between price and consumption. You can visualize this idea with the demand curve graph. In an elastic demand graph, in which price is on the y-axis and demand is on the x-axis, the flatter the curve is, the more elastic the demand.
Example of Elastic Demand
A hypothetical example of a product with elastic demand could be an airline ticket. There are several airlines available, which make it a very competitive market. Let's suppose one company sells a one-way ticket from the U.S. to France for $300 while another is selling it for $250. Considering the elastic demand in this scenario, consumers would opt for a cheaper ticket.
However, depending on things such as the airline's reputation and the number of stopovers on the flight, the consumer can choose not to travel. In that scenario, the person could even opt to travel by car or bus inside the USA. That's why elastic demand is typically associated with luxuries, replaceable goods and services, or ones that different brands offer.
Elastic Demand vs. Inelastic Demand
While elastic demand is demand that changes drastically when the price changes, inelastic demand is what happens when demand suffers little to no change. Inelastic demand is typical of basic goods and products that have few alternatives. Good examples of products with inelastic demand are food items (such as milk and fruit) and gasoline.
If the price of a product rises all of a sudden, but people don't stop buying it, it configures what we call "inelastic demand." However, if consumers are sensitive to the change in price and stop buying the good or service, it's because the product has an elastic demand.
Luxury items, such as a sports car experience elastic demand. People may opt to simply not buy the car, compare the price between luxury car brands, or even wait to see if the price will fall. That's only possible because it isn't an essential item, such as food and gas.