How is the demand curve for an item that is very responsive to price changes likely to be different from that of an item whose demand is not very responsive?
The demand curve for an item that is very responsive to price changes, also known as elastic demand, will be different from that of an item with inelastic demand, which is not very responsive to price changes. Here's how to understand the differences and determine the shape of each demand curve:
1. Elastic Demand:
When the demand for a product is elastic, it means that consumers are highly sensitive to changes in price. In other words, a small change in price will cause a relatively larger change in the quantity demanded.
To determine the demand curve for an elastic item, you should consider the following characteristics:
- Steeper Slope: The demand curve for an elastic item will have a steeper slope compared to inelastic demand. This indicates that a price change leads to a relatively larger change in quantity demanded.
- High price elasticity of demand: Elastic demand is usually characterized by a price elasticity of demand greater than 1. This means that the percentage change in quantity demanded will be greater than the percentage change in price.
- Flatter Total Revenue curve: When price decreases, the increase in quantity demanded will be substantial, leading to a significant increase in total revenue. Conversely, an increase in price will cause a relatively large decrease in quantity demanded and total revenue.
2. Inelastic Demand:
On the other hand, when the demand for a product is inelastic, it indicates that consumers are not very responsive to price changes. In this case, a change in price will result in a proportionally smaller change in the quantity demanded.
To determine the demand curve for an inelastic item, you should consider the following characteristics:
- Less Steep Slope: The demand curve for an inelastic item will have a less steep slope compared to elastic demand. This indicates that a change in price causes a relatively smaller change in quantity demanded.
- Low price elasticity of demand: Inelastic demand is usually characterized by a price elasticity of demand less than 1. This implies that the percentage change in quantity demanded will be less than the percentage change in price.
- Steeper Total Revenue curve: When price decreases, the increase in quantity demanded will be relatively small, leading to a smaller increase in total revenue. Conversely, an increase in price will cause a proportionally smaller decrease in quantity demanded and total revenue.
In summary, the demand curve for an item with elastic demand will be steeper, reflecting consumers' greater responsiveness to price changes. Conversely, the demand curve for an item with inelastic demand will be less steep, indicating consumers' lower sensitivity to price changes.