Relatively Elastic Demand

When the percentage change in quantity demanded is greater than the percentage change in price, the demand is said to be elastic.

Or

In other words, relatively small changes in price cause relatively large changes in quantity.

Observe the graph, price of the goods increased from P1 to P2 and eventually the demand for the goods decreases from Q1 to Q2. But the proportionate change in price is less than the proportionate change in demand.

For example, if a 40% increase in demand is the outcome of 20% fall in price then,

EP = 40 / 20 = 2

Example: - There are commodities for which a small change in price will drastically reduce the amount of the commodity demanded. For example, air-travel for vacationers is very sensitive to price. An increase in the air fare will lead the vacationer to choose another mode of transportation like car or lead him to postpone the vacation plan for the time being. Thus for a rise in airlines fare for the vacationers we would see a relatively more drastic reduction in demand towards air travel and hence its the situation of high price elasticity of demand.