David R. answered • 10/24/15
Tutor
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Economics, Analytics Professional
Juan, I think you may have reversed the relationship between elasticity and utility. Elasticity refers to, or is descriptive of, changes in quantity as price changes. For "own price elasticity" (the change in quantity as a good's own price changes) is the percentage change in quantity divided by the percentage change in price. If the percentage change in price (up or down) is greater than the percentage change in quantity, then demand is said to be inelastic. If the opposite is true, then demand is said to be elastic.
Utility, or the change in utility as more of a good is consumed, determines the demand curve. The demand curve can be thought of as a curve that plots the value of the marginal utility (the value of consuming one more unit) of a particular good or service. Price elasticity describes the relationship between changes in price and quantity as one moves along the demand curve. If price has no effect on the quantity demanded, we call this perfect inelasticity--the consumer will pay any price to consume a particular quantity (vertical demand curve). An example would be a life preserving drug that the consumer cannot live without. If the demand curve is horizontal, we say it is perfectly elastic and any price increase will cause quantity demanded to drop to zero.
Utility describes our desire for consuming a good or service. How our desire changes for consuming an additional unit and thus how much we are willing to pay for that additional unit is the demand curve. Elasticity describes how quantity demanded changes as price changes, that is, as we move long the demand curve.
We can also use the concept of elasticity to describe how a percentage change in income would effect quantity demanded (income elasticity) or how the prices of another good effects the quantity demand (cross-price elasticity).
I hope this helps, Juan.
