Inelastic Demand: Definition, Examples, Meaning, Formula, Curve

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In economics, there is a concept known as “inelastic demand.” This term refers to a situation in which consumers are not very likely to change their behavior when it comes to purchasing a particular product.

For example, people need food to survive, so the demand for food is considered inelastic. It is unlikely that people will stop buying food just because the price of groceries goes up.

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What is Inelastic Demand?

A buyer is inelastic when the demand for a product does not significantly change as the price changes. If, for example, the price increase by 20% but the demand decreases by only 1%, then we say that demand is inelastic.

This inflation often happens with necessary goods and services that people use regularly. Even if the price of these things goes up, individuals will still buy about the same amount because their needs have not changed.

In simple words, inelastic demand is when people don’t care about the price changes and still buy the same quantity.

The demand for a product is inelastic if a price change has a relatively small effect on the quantity demanded of that good.

Inelastic Demand Formula

The formula for inelastic demand is

Inelastic Demand = % Change in Quantity Demanded / % Change in Price

  1. Change in Quantity Demanded: This is the difference between the original quantity demanded and the new quantity demanded.
  2. Change in Price: This is the difference between the original price and the new price.
  3. Inelastic Demand: This calculation will tell you how inelastic the demand is. The closer the number is to 0, the more inelastic the demand. The further away from zero, the more elastic the demand is.

Example of Inelastic Demand

Let’s say the price of rice increases from $2 to $2.20 per pound. The quantity demanded decreases from 100 pounds to 98 pounds.

First, we need to calculate the change in quantity demanded and the price change.

Change in Quantity Demanded = Original Quantity Demanded – New Quantity Demanded

Change in Quantity Demanded = 100 – 98 = 2

Change in Price = Original Price – New Price

Change in Price = $2.00 – $2.20 = $0.20

Now, we can plug these values into the formula to calculate inelasticity.

Inelastic Demand = % Change in Quantity Demanded / % Change in Price

Inelastic Demand = 2 / 0.20

Inelastic Demand = 10

The inelasticity of demand is 10, which means that the demand is relatively inelastic. This means that a price change has only a small effect on the quantity demanded.

Examples of Inelastic Goods

It’s hard to find examples of perfectly inelastic demand because few people are willing to buy the same quantity of a good no matter how high the price is. However, there are some goods and services that people need so badly that they’re willing to pay just about any price.

Some examples of inelastic goods include

  • Necessities
  • Addictions
  • Luxuries

These are all things that people are willing to pay for no matter how high the price is. They may not be happy about it, but they will still make the purchase.

Conclusion

Inelastic demand can be a difficult concept to grasp, but it’s important to understand to make sound economic decisions. By understanding inelasticity, you can better predict how price changes will affect the demand for a good or service. It can also be used to your advantage when setting prices for goods and services.

Further questions

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