## Ackbar 3 years ago What is the difference between elastic and inelastic demand?

1. LeoMessi

Right, a fundamental question ;) Let's first draw Supply and Demand graphs

2. LeoMessi

|dw:1330488154668:dw|

3. LeoMessi

Price is on the the Y-axis, and Quantity is on the X-axis. This is the basic concept

4. Ackbar

sure, yeah, i get that

5. LeoMessi

Elasticity of demand is concerned with how the demand curve changes given changes in price. \[\Delta demand / \Delta price\]

6. LeoMessi

|dw:1330488876988:dw| at price P1, Q1 is demanded of the good we're considering

7. LeoMessi

|dw:1330488933838:dw| now if P1 increases to P2, the quantity demanded decreases to Q2 here

8. LeoMessi

The demand curve hers is pretty much negatively linear (let's say -1 slope), so the elasticity is between that of perfectly elastic and perfectly inelastic.

9. Ackbar

In between?

10. LeoMessi

Yes, so|dw:1330489138203:dw|

11. LeoMessi

I'll just use this graph as a baseline so i can show you changes more easily

12. LeoMessi

|dw:1330489205506:dw| perfectly elastic demand is a horizontal demand curve. When the price changes, the demand essentially drops to 0

13. LeoMessi

|dw:1330489375627:dw| P1 increases to P2, but Demand only will "buy" the product at P1 and will only buy Q1 of the product. So the price increased and demand dropped, so that probably means that the consumer found another similar product to purchase

14. LeoMessi

|dw:1330489585257:dw| Here you have Inelastic demand, what do you think happens when the price increases?

15. Ackbar

ah, ok, easy to see! an increase in price wouldn't change demand, Q1 would still be demanded

16. LeoMessi

Exactly, seems like this helped ;)

17. joycechee

LeoMessi, by a change in the demand, I think you mean a change in the quantity demanded because the curve never shifts. So, are you saying that the slope or the derivative from the previous equilibrium point to the second point is negative? Just a little confused.