What is the Difference Between Elastic and Inelastic?

The main difference between elastic and inelastic demand lies in how the demand for a product responds to changes in economic factors, such as price, income, or substitute availability. Here are the key differences between elastic and inelastic demand:

1. Response to price changes: Elastic demand means that a small change in the price of a good causes a greater change in the quantity demanded. In contrast, inelastic demand means that a change in the price of a good does not have a significant effect on the quantity demanded.
2. Coefficient of elasticity: The elasticity of demand can be calculated as a ratio of percent change in the demand of the product. If the coefficient of elasticity of demand is greater than or equal to 1, then the demand is elastic. If it's less than 1, the demand is said to be inelastic.
3. Relation to economic factors: Elastic demand changes in relation to economic factors, such as price or income, while inelastic demand remains constant even when economic factors change.
4. Impact on total revenue: In the case of elastic demand, an increase in price leads to a decrease in revenue, while a decrease in price leads to an increase in sales volume and therefore, revenue. Conversely, when demand is inelastic, an increase in price leads to an increase in revenue, and vice versa during a price fall.
5. Product and service types: Products and services with many available substitutes have elastic demand, while products and services with few alternatives are typically inelastic. Examples of elastic goods include luxury items and certain food and beverages, while inelastic goods may include items such as tobacco and prescription drugs.

Comparative Table: Elastic vs Inelastic

Here is a table comparing the differences between elastic and inelastic demand:

In summary, elastic demand experiences significant changes in response to economic factors, while inelastic demand remains constant regardless of economic changes. Products with many alternatives and a larger share of the consumer's budget tend to have elastic demand, while products with few alternatives and a smaller share of the budget tend to have inelastic demand.