Definition: Elastic demand is an economic concept that occurs when the quantity of a product responds intensively to a change in the price of the product.
What Does Elastic Demand Mean?
What is the definition of elastic demand? According to the law of demand, when the price of a product rises, the quantity demanded declines because people are not willing to spend more money on a particular product. Likewise, when the price of a product declines, the quantity demanded rises because people save money on the product. However, the change is not the same for all products. When a product responds highly to a change in the price, the demand is said to be elastic. On the contrary, when a product responds weakly to a change in the price, the demand is said to be inelastic.
Let’s look at an example.
The elasticity of demand is determined by several factors, including the existence of substitute products and the disposable income of consumers. For instance, clothing has an elastic demand because there are a lot of choices (substitute goods) and people can choose how much they want to spend on clothing. Retailers offer huge sales in clothing to be competitive and increase their revenues. So, because the demand is elastic, the demand for clothes increases as the prices of clothes decrease.
Adam wants to buy a suit. He goes to a well-established retailer, where usually buys his clothes, and looks for a nice, comfortable, and relatively expensive suit for a wedding. There, he finds out that the suits are on sale. He would normally spend $100 for one suit, but if he spends $125, he can buy two suits. Although he doesn’t really need a second suit, he considers this a bargain, and he buys two suits.
In the afternoon, he escorts his wife in another retailer because she needs a dress for the wedding. There, he discovers that the store offers two casual suits for $90. So, Adam buys another two suits. So, in fact, the change in the quantity that Adam buys (4/1) is greater than the change in the price (215 / 100). This is an example of the elasticity of demand.
Define Elastic Demand: Elastic demand means consumer demand is more likely to change as the price of goods and services change.