The following visual image might help you remember the distinction between "elastic" and "inelastic" demand. Imagine someone simultaneously dropping a golf ball and an equally sized steel ball bearing from the same height onto a concrete surface. The golf ball bounces upward a great distance, but the ball bearing barely bounces at all. Similar differences occur for quantity demanded of various products when their price changes. For some products, changes in price cause a substantial "bounce" in quantity demanded. When this "bounce" (in percentage terms) exceeds the percentage change in price, demand is elastic. For other products, quantity demanded has very little "bounce" in response to a price change. When this "bounce" (in percentage terms) is less than the percentage change in price, demand is inelastic. In summary: Elastic demand displays considerable "quantity bounce" (as with the golf ball). Inelastic demand displays relatively little "quantity bounce" (as with the ball bearing). And, through extension: Perfectly elastic demand has infinite "quantity bounce." Perfectly inelastic demand has zero "quantity bounce."

Photograph courtesy of: (c)Photodisc # SP003333;

7.2 Below-equilibrium prices

Below-equilibrium pricing should not be associated solely with government policies. Rock superstars (or "alternative" or "country and western" superstars) sometimes price their concert tickets below the market-clearing price. The tickets are usually rationed on a first-come, first-served basis, and ticket "scalping" is common. Why should these stars want to subsidize their fans--at least those fortunate enough to obtain tickets--with below-equilibrium prices? Why not set ticket prices at a higher, market-clearing level and realize more income from a tour? The answer is that long lines of fans waiting hours or days for bargain-priced tickets catch the attention of the press. (Some of the people in the lines, however, are there to buy tickets for resale!) The millions of dollars’ worth of free publicity that results undoubtedly stimulates cassette and CD sales from which much of any musician’s income is derived. Thus the "gift" of below-equilibrium ticket prices from a rock star to fans also benefits the star. And the gift imposes a cost on fans--the opportunity cost of time spent waiting in line to buy tickets. Incidentally, many people regard the ticket scalping often associated with musical or athletic events as a form of extortion, where the extortionist’s (the seller’s) gain is the victim’s (the buyer’s) loss. But the fact that scalping is a voluntary transaction suggests that both seller and buyer gain; otherwise, the exchange would not occur. Such exchanges redistribute assets (tickets) from those who value them less to those who value them more.

Photograph courtesy of: (c)James L. Lance/Corbis; (c)Corbis# CBO47981;