Using examples, explain the difference between price elastic and inelastic.

Price elastic refers to when a change in the price of a good or services creates a larger percentage change in the demand for that good, or PED > 1. An example of an elastic good is Hovis Bread, because there are alternatives available. A rise in the price of Hovis bread will create a large fall in the percentage demanded as individuals will instead purchase other brands such as Walburtons. The price elasticity of demand depends on time frame of the decision, degree of necessity, brand loyalty, availability of substitutes, percentage of income and habitual demand. Alternatively, price inelastic is the inverse where a change in the price of a good leads to a smaller percentage change in the quantity demand or 0 < PED < 1. This is normally found if a good is a necessity or when there are no substitutes available. Diesel is considered to be relatively price inelastic as there are no immediate alternatives, so even if the price increases we still have to purchase the same quantity of fuel. This can be seen on a simple demand and supply curve (seen below) where the inelastic curve is steeper and the elastic demand curve is flatter.