When with large change in price there is no change in demand it is called as?

Elasticity of demand is an important variation on the concept of demand. Demand can be classified as elastic, inelastic or unitary.

An elastic demand is one in which the change in quantity demanded due to a change in price is large. An inelastic demand is one in which the change in quantity demanded due to a change in price is small.
The formula for computing elasticity of demand is:

(Q1 – Q2) / (Q1 + Q2)
(P1 – P2) / (P1 + P2)

If the formula creates an absolute value greater than 1, the demand is elastic. In other words, quantity changes faster than price. If the value is less than 1, demand is inelastic. In other words, quantity changes slower than price. If the number is equal to 1, elasticity of demand is unitary. In other words, quantity changes at the same rate as price.

Elastic Demand

Elasticity of demand is illustrated in Figure 1. Note that a change in price results in a large change in quantity demanded. An example of products with an elastic demand is consumer durables. These are items that are purchased infrequently, like a washing machine or an automobile, and can be postponed if price rises. For example, automobile rebates have been very successful in increasing automobile sales by reducing price.

Close substitutes for a product affect the elasticity of demand. If another product can easily be substituted for your product, consumers will quickly switch to the other product if the price of your product rises or the price of the other product declines. For example, beef, pork and poultry are all meat products. The declining price of poultry in recent years has caused the consumption of poultry to increase, at the expense of beef and pork. So products with close substitutes tend to have elastic demand.

An example of computing elasticity of demand using the formula is shown in Example 1. When the price decreases from $10 per unit to $8 per unit, the quantity sold increases from 30 units to 50 units. The elasticity coefficient is 2.25.

Inelastic Demand

Inelastic demand is shown in Figure 2. Note that a change in price results in only a small change in quantity demanded. In other words, the quantity demanded is not very responsive to changes in price. Examples of this are necessities like food and fuel. Consumers will not reduce their food purchases if food prices rise, although there may be shifts in the types of food they purchase. Also, consumers will not greatly change their driving behavior if gasoline prices rise.

An example of computing inelasticity of demand using the formula above is shown in Example 2. When the price decreases from $12 to $6 (50%), the quantity of demand increases from 40 to only 50 (25%). The elasticity coefficient is .33.

This does not mean that the demand for an individual producer is inelastic. For example, a rise in the price of gasoline at all stations may not reduce gasoline sales significantly. However, a rise of an individual station’s price will significantly affect that station’s sales.

Unitary Elasticity

If the elasticity coefficient is equal to one, demand is unitarily elastic as shown in Figure 3. For example, a 10% quantity change divided by a 10% price change is one. This means that a 1% change in quantity occurs for every 1% change in price.

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Elastic demand occurs when the price of a good or service affects consumer demand. If the price goes down just a little, consumers will buy a lot more. If prices rise just a bit, they'll stop buying as much and wait for prices to return to normal.

Definition and Examples of Elastic Demand

Whether demand for an item or service is elastic or inelastic is measured by its percent of change in demand divided by its percent of change in price, if all other factors remain the same. If an item's change in price changes in proportion to its change in demand, it is neither elastic nor inelastic. In other words, an item has elastic demand if its demand changes more than its price changes.

As an example of perfectly elastic demand, imagine that two stores sell identical ounces of gold. One sells it for $1,800 an ounce, while another sells it for $1,799 an ounce. If demand for gold were perfectly elastic, no one would buy the more expensive gold. Instead, everyone would buy gold from the dealer that sells it for less.

Price is one of the five determinants of demand, but it doesn't affect the demand for all goods and services equally. When price heavily affects demand, that good or service is said to have "elastic demand." The name comes from the way economists think about the demand for that good or service—it stretches easily, and a slight price change results in large changes to demand.

In a real-life situation of almost perfect elasticity, some people might still pay more for gold because they like the other shop owner better, or the other shop is closer to their home, and they don't want to drive across town to the store with the cheaper gold.

Note

You can talk about elastic demand as a type of demand (when changes in demand outpace changes in price), or you can talk about elastic demand in terms of relativity (i.e., this product's demand is more elastic than that product's).

A more realistic example of elastic demand is housing. There are many different housing choices. People could live in a suburban home, a condo, or rent an apartment. They could live by themselves, with a partner, with roommates, or with family. Because there are so many options, people don't have to pay a specific price. 

Clothing also has elastic demand. Everyone needs to wear clothes, but there are many choices about what kind of clothing they want to wear and how much they want to spend. When some stores offer sales, other stores have to lower their clothing prices to maintain demand. During the Great Recession, many clothing stores were replaced by second-hand stores that offered quality used clothing at steeply discounted prices.

How Does Elastic Demand Work?

The law of demand guides the relationship between price and the quantity demanded. It states that the quantity purchased has an inverse relationship with price. When prices rise, people buy less. The elasticity of demand tells you how much the amount bought decreases when the price increases.

Using the law of demand, if an item's price increases, demand for it should decrease. The amount of change, measured by percentage, is used to figure out whether demand is elastic or not. Change in demand is compared to change in price to figure it out. If the comparison result is one, then the item is considered to have unified elasticity—price and demand that change proportionally. If it is greater than one, it is elastic; if it is less than one, it is inelastic.

For instance, if the price for widgets went up by 1%, and demand went down by 1%, you'd divide the change in demand by the change in price:

.01 ÷ .01 = 1

Widgets have unified elasticity in this case. However, if the price for widgets went up by 1%, and demand went down by 5%, you'd get:

.05 ÷ .01 = 5

In this case, widgets are elastic, because their demand changed drastically with the price change. So, since widgets have elastic demand, consumers will look around for the best prices, because merchants and suppliers cannot corner the market with absurd prices.

How to Use a Demand Curve Graph

You can visualize this elastic demand with a demand curve graph. In an elastic demand scenario, the quantity demanded changes much more than the price. When the price is on the y-axis, and demand is on the x-axis, the elastic demand curve will look lower and flatter than other types of demand. The more elastic the demand is, the flatter the curve will be.

The demand curve—and any discussion about price elasticity—only shows how the quantity demanded changes in response to price ceteris paribus. This Latin phrase means "other things being equal." In economics, it refers to how something is affected when all other factors that influence it remain the same. If one of the other determinants of demand changes, the entire demand curve can change and skew the perception of elasticity.

Note

The demand curve is based on the demand schedule, which displays the same data in a table format. This table describes exactly how many units will be bought at each price.

Perfectly elastic demand occurs when the quantity demanded skyrockets to infinity when the price drops any amount. This is not something that would happen in real life. However, many commodities close the gap between elastic and perfectly elastic, because they are highly competitive. The price is essentially the only thing that matters for these items.

Elastic Demand vs. Inelastic Demand

Elastic Demand vs. Inelastic DemandElastic DemandInelastic DemandDemand changes more than pricePrice changes more than demandOften applies to products and services for which consumers have many optionsOften applies to products and services for which consumers have few alternativesExamples include luxuriesExamples include basic goods

The opposite of elastic demand is inelastic demand. Demand changes more than price when it is elastic, and price changes more than demand when it is inelastic. In other words, an item has an inelastic demand when consumers are willing to tolerate greater changes in price before they alter their behavior. The price of a product with inelastic demand could suddenly rise, but consumers would be unlikely to consider alternatives—or there aren't any alternatives to consider.

Some goods, like staple food items, also have inelastic demand. If the price for staples like fruits and vegetables or meat and poultry were to go up, you'd be forced to pay the higher price.

Elastic demand is more likely to apply to luxuries and non-essentials, because consumers have many options for non-essential items, such as off-brands or imitations—they also have the choice not to purchase something at all.

Key Takeaways

• Elastic demand occurs when a product or service's demanded quantity changes by a greater percentage than changes in price.
• The opposite of elastic demand is inelastic demand, which occurs when consumers buy largely the same quantity regardless of price.
• The demand curve shows how the quantity demanded responds to price changes. The flatter the curve, the more elastic demand is.
• Items with elastic demand are generally non-essential items.

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Sources

The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.

1. Fullerton College. "Determinants of Demand." Accessed Dec. 1, 2021.

2. Federal Reserve Bank of St. Louis. "Elasticity of Demand - The Economic Lowdown Podcast Series, Episode 16." Accessed Dec. 1, 2021.

   When the change in quantity demanded is more as the change is price it is called as?

   Increase in Quantity Demanded The proportion that quantity demanded changes relative to a change in price is known as the elasticity of demand and is related to the slope of the demand curve.

   What is inelastic in demand?

   What Is Inelastic Demand? "Inelastic" is an economic term referring to the static quantity of a good or service when its price changes. Inelastic demand means that when the price goes up, consumers' buying habits stay about the same, and when the price goes down, consumers' buying habits also remain unchanged.

   Where change in demand is less than change in price is known as?

   If the percentage change in quantity demanded is less than the percentage change in price, demand is said to be price inelastic, or not very responsive to price changes.