• anonymous
whats inelastic and elastic? also once you calculated price elasticity of demand how do you know elastic or in?
Economics - Financial Markets
  • Stacey Warren - Expert
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  • katieb
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  • anonymous
Demand can be elastic or inelastic in economic theory. Elasticity of demand is the measure of responsiveness of the level of demand in response to a change in prices. This means that, for example, if prices increase, let's say, by only a small amount (e.g. 50p) and the demand, or willingness to buy that item (let's say it's chocolate) drops by a greater or much greater amount than the price changed (e.g. from 1000 people to 300 people), then the demand for that item is said to be PRICE ELASTIC. However, if price increases by a large amount (e.g. by £30) for petrol, and the demand only decreases by a little amount, or an amount less than that in the change of price for petrol (let's say 1000 people to 900 people), then the demand for that item is said to be PRICE INELASTIC. Calculation of elasticity: \[percentage~change~of~quantity~demanded \over precentage~change~of~price\] If demand is ineslatic, outcome = < (-) 1 (less than (negative) one) unitary price elastic, outcome = (-) 1 ((negative) one) elastic, outcome = > (-) 1 (greater than (negative) one) Note: Elasticity for demand in results is negative because of the inverse relationship between demand and price (as price goes up, demand falls); however, the negative sign is not shown/used or is stated in brackets when calculating the elasticity of demand. Hope this helps! If you have questions, please ask. I've been studying these principles for a while now...

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