anonymous
  • anonymous
What is the difference between elastic and inelastic demand?
OCW Scholar - Principles of Microeconomics
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katieb
  • katieb
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anonymous
  • anonymous
Right, a fundamental question ;) Let's first draw Supply and Demand graphs
anonymous
  • anonymous
|dw:1330488154668:dw|
anonymous
  • anonymous
Price is on the the Y-axis, and Quantity is on the X-axis. This is the basic concept

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anonymous
  • anonymous
sure, yeah, i get that
anonymous
  • anonymous
Elasticity of demand is concerned with how the demand curve changes given changes in price. \[\Delta demand / \Delta price\]
anonymous
  • anonymous
|dw:1330488876988:dw| at price P1, Q1 is demanded of the good we're considering
anonymous
  • anonymous
|dw:1330488933838:dw| now if P1 increases to P2, the quantity demanded decreases to Q2 here
anonymous
  • anonymous
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.
anonymous
  • anonymous
In between?
anonymous
  • anonymous
Yes, so|dw:1330489138203:dw|
anonymous
  • anonymous
I'll just use this graph as a baseline so i can show you changes more easily
anonymous
  • anonymous
|dw:1330489205506:dw| perfectly elastic demand is a horizontal demand curve. When the price changes, the demand essentially drops to 0
anonymous
  • anonymous
|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
anonymous
  • anonymous
|dw:1330489585257:dw| Here you have Inelastic demand, what do you think happens when the price increases?
anonymous
  • anonymous
ah, ok, easy to see! an increase in price wouldn't change demand, Q1 would still be demanded
anonymous
  • anonymous
Exactly, seems like this helped ;)
anonymous
  • anonymous
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.

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