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Elastic Demand

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Often, it is necessary to assess the level of elasticity of demand. Elasticity is the
measurement of how changing one variable, like price, affects others, like quantity
demanded. In order to calculate it, you can use the price elasticity of demand, or
PED. It is the % change of quantity divided by the % change in price.

Because elasticity is almost always negative, values are expressed as positive
numbers. If the PED is found to be greater than 1, demand is elastic. If the PED is
founded to be between 0 and 1, demand is inelastic. If demand is equal to 1, it is

Elasticity is a very important concept in economics because different goods and
services in the market have different levels of elasticity. The demand for one good/
services may be extremely sensitive to changes in price, which is when demand is

elastic. When demand for a good/service is inelastic, if the price increases very few
people would stop purchasing it, or at least the effect is not as great as for more
elastic goods/services.

Because price elasticity of demand is the % change in quantity over % change in
price, depending on the location of the demand curve, elasticity changes. When
comparing two demand curves on the same graph, the flatter curve overall has a
more elastic demand. In the case of perfectly elastic demand, the demand curve will
be horizontal.


Instructional Audio

Price elasticity of demand, or PED, is a measure in economics that measures the responsiveness of demand, the demon, to changes in price.  

It is calculated by taking the % change in quantity, the queen, over the % change in price, the little prince.  Demand is elastic when the PED is greater than 1 in absolute value. This means that the % change of quantity is larger than the % change in price. That’s why the queen is so much larger than the prince.

When comparing two demand curves on the same graph, the flatter curve overall has a more elastic demand. In fact, in the case of perfectly elastic demand, the
demand curve will be horizontal; just like demon’s elastic pants.


This fashion savvy demon loves his extensive wardrobe and now hes demanding the return of his elastic pants.  After all, the queen has changed, growing rather large since he let her borrow them. The demon is worried shell stretch them flat out and the pants will no longer hug his curves.  He feels bad because the prince also enjoys wearing these elastic pants, and he has changed very little.  But this prince is known for putting the comforts of the queen over his own.  The demon knows better when the prince says he wont let the queen wear the pants if theyre left with him.

Percent change in quantity over change in price
Queen on top of the prince

This coefficient measures the price elasticity of demand to determine if demand is elastic or inelastic

Quantity demanded

The amount of a given good or service.


How much a given good or service costs.

Change in quantity larger than change in price
Fat queen skinny prince

When the demand curve is elastic related to price, a one unit change
in price has a greater than one unit impact on quantity.

Flat demand curve
Elastic pants is stretched sideways by demand demon

Elastic demand curves are flatter than inelastic demand curves.


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