What Is Meant by Inelastic Demand?
When something has an inelastic demand it means the demand doesn’t change as often as the price.
The perfect example is gasoline!
For example, the price of something could go up 30% but the demand only goes down by 2%.
Inelastic demand is normally associated with items that are needed rather than wanted or desired.
Inelastic often means there is less choice for these products which means the demand doesn’t change as much as the price does.
Some examples might be:-
- Gasoline in the short run
- Medical supplies like drugs and prescriptions
- Utilities like electric and gas
These are all things that we need to get by in life.
On the flip side, things that said to be elastic might be things like:-
- Designer clothes
- Fast and luxury cars
- Specific brands when there plenty of alternatives
These are things that we don’t generally need but desire.
The market (i.e. customers) tend to be much more sensitive to any price change and the demand will change with it.
If your favorite tin of soup goes up by $2, you might not be willing to pay for it as there’s likely to be alternatives on the market.