What Is Inelastic Demand? All about Inelastic in Ecomnomics

What Is Inelastic Demand?

“Inelastic” is an economic phrase that refers to the amount that remains static of an item or service as its cost changes. Inelastic demand implies that when the cost goes up, the consumers’ purchasing behaviors remain the same. When the price decreases the consumers’ purchasing habits remain unchanged.For instance, suppose the cost of a vital medication went by $200, then $202, which is a 1percent increase, and demand went from 1,000 units up to 9,95 units smaller than 1 percent reduction then the medicine is considered to be an inelastic item.

If the price hike didn’t have any effect on the quantity of the medication the medicine would be considered completely inelastic. Medical treatments and necessities are generally inflexible due to their necessity for the survival of the body, while the luxury items like cruises and sports cars tend to be quite flexible.

A demand curve for an inelastic product is shown as vertical lines in graphic presentation because the quantity of goods required is the same regardless of price. It is possible to be totally inelastic for an item that is unique, such as an art work. However much the consumers will pay there will never be more than one version.

Formula and Calculation of Inelastic Demand

The formula for inelastic demand is

Inelastic Demand: % of change quantity of goods demandedor % variation in prices

A value of less than 1 means inelasticity.

As an example, if cost of a product changed between $5 and $8 (60 percent) while the market demand grew between 100 and 70 units (30 percent) The result equals 30/60 or 0.5 which means that the product is not elastic.

Perfectly Inelastic Goods

There are no instances of products that are completely inelastic. If they were, it means suppliers and producers can sell whatever they wanted to and consumers would need to purchase the items. The closest thing to being a completely inelastic product is water and air which nobody controls.But certain items which are completely inelastic. Consider gasoline for instance. Prices fluctuate frequently and, if the supply is reduced the prices will rise. The majority of people require gas to drive their cars. They’ll continue to require gas because they might not be able to change their driving habits, like taking a commute to work, hanging out with family members, taking kids to school or for a shopping trip.

What Is an Example of Inelastic Demand?

Inelastic demand refers the need for a product or service that is not changing in the event that the price fluctuates either way. One example is insulin which is required by people suffering from diabetes. Since insulin is an essential treatment for diabetics, the demand for it won’t increase if the cost increases by, say.

What Does It Mean if Supply Is Inelastic?

A product is considered to be inelastic when the supply of that good doesn’t change dramatically as a result of price fluctuations. This is usually the case when the suppliers are working at their maximum capacity.

What Are Common Inelastic Goods?

Common inelastic products include salt, petrol water, other products and services sold through monopolies, cigarettes and diamonds.

What Does It Mean If Demand Is Perfectly Inelastic?

Demand is deemed as “perfectly inelastic” if the demand for the product will remain constant regardless of price adjustments. Demand that is perfectly inelastic occurs very rarely within the actual world. Some examples include rare medications or fresh water during the midst of drought. In spite of price fluctuations the products will continue to be in high demand.

Conclusion

Inelastic is the term used to describe the amount that remains static for the product when its price fluctuates. If the cost of a service or product is changed and the amount requested of that product doesn’t change significantly the service or good is deemed to be inelastic.

Businesses must walk the fine line between pricing an item or service and ensuring that demand is maintained. The demand for items that are considered luxury is more vulnerable to changes in price , whereas the demand for necessities isn’t. The companies must take into consideration these aspects when determining the price of their products.