Concept of Inelastic Demand

Inelastic Demand

Is where, for a given percentage change in price, there is a proportionately lower change in demand. It is the situation of a product that has low price sensitivity because consumers need it or think they need it. Examples of goods with inelastic demand are necessities like fuel and heavily branded items such as Levi’s. If the price of Levi’s rises by 10 per cent then demand might only fall by 5 per cent. In this case, the numerical value of its price elasticity would be: 5% ÷ 10% = 0.5.

Any good having inelastic demand would have a lower number at the top (the numerator) than at the bottom (the denominator), and therefore the final value will always be less than one but greater than zero. As with all elasticity of demand measures, it is conventional to ignore the minus sign, which should of course be a part of the equation since as one factor goes up (+), the other must go down (–), and vice versa.


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