How does elastic demand differ from inelastic demand?

Elastic demand is characterized by a significant change in the quantity demanded in response to small changes in price. When demand is elastic, consumers are highly sensitive to price fluctuations; even a small increase in price may lead to a considerable decrease in quantity demanded, and vice versa.

This understanding is crucial because it highlights how businesses and policymakers can anticipate consumer behavior in response to pricing strategies. For example, if a company increases the price of a product with elastic demand, they may experience a drastic drop in sales, while a decrease in price could lead to a substantial increase in sales.

To contrast this, inelastic demand does not change significantly with price changes, which means that consumers will still purchase a relatively consistent quantity regardless of price fluctuations. Thus, the notion that elastic demand is about substantial changes in quantity demanded is what clearly distinguishes it from inelastic demand.