Elastic Demand

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Definition of Elastic Demand:


An elastic demand is a good or service's demand that has a price elasticity of demand greater than one. The percentage change in the quantity demanded is greater than the percentage change in price following a price change. 

Detailed Explanation:

An elastic demand has an elasticity greater than one.  When the demand is elastic, an increase in price will result in a larger percentage reduction in the quantity demanded. Here, total revenue will fall when prices are increased and rise when prices are decreased. An elasticity of 1.5 means that if there were a one percent decline in price, there would be a 1.5 percent increase in the quantity demanded. Conversely, an increase in price will result in a decrease in total revenues. Fine restaurants and most other luxuries have an elastic demand because they are not necessities and have many substitutes. Dinner at a fine restaurant is more susceptible to price increases. The law of demand asserts that as the price of a meal at a fine restaurant increases, the quantity demanded for that meal decreases. Some customers would choose to patronize another less expensive restaurant if the management of a restaurant raised prices too high.

Dig Deeper With These Free Lessons:

Price Elasticity of Demand - How Much of a Price Change Would You Tolerate
Demand - The Consumer's Perspective
Changes in Demand - When Consumer Tastes Change
Supply and Demand - When Consumers and Producers Reach Agreement
Price Elasticity of Supply - How Does a Producer Respond to a Price Change  

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