Inelastic Demand Definition and Examples

Inelastic demand in economics can be defined as a minor change in the demand of the quantity or change in the behavior of consumers, or perhaps no changes in the quantity of demanded goods whenever there is a change in the price of that product. Further, this can be determined by dividing the percentage change in quantity demanded by the percentage change in price. In this article, we will discuss the practical examples of inelastic demand.

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Top 4 Examples of Inelastic Demand

The following are examples of inelastic demand.

Inelastic Demand – Example #1

Gasoline is one such kind of product that the market has observed that even though the prices rise, consumers buy the same quantity. In the flip case, when gasoline prices drop, consumers again do not buy more and buy only the same quantity. You are required to discuss this scenario in terms of economicsEconomicsEconomics is an area of social science that studies the production, distribution, and consumption of limited resources within a society.read more.

Solution

Consumers behave differently toward different products depending on their needs, requirements, and taste. Goods, therefore, have been classified as normal goods, luxury goods, and necessity goods in economics. Gasoline falls under necessity or inferior goods where consumers prefer to buy the same quantity despite changes in the price of gasoline whether it rises or falls. This kind of situation in economics is referred to as inelastic demand of elasticity, where the price fluctuates, but the quantity demand remains the same.

Inelastic Demand – Example #2

Consumers have a lot of preferences in life for goods, but there are some inferior products that they do not have any wish but a need. For example, in one of the scenarios, XYZ Co. uses to make a unique product used in case of an emergency such as a fire extinguisher. As a result, the company observed unusual behavior for their product.

When the fire extinguisher prices were increased from $1550 to $1855, quantity demanded Quantity Demanded Quantity demanded is the quantity of a particular commodity at a particular price. It changes with change in price and does not rely on market equilibrium.read more went from 300 units to 295 units.

Compute the demand elasticity of this product and comment upon the same.

It is observed here that in case there is an increase in the price of fire extinguishers, say by ($1655 – $1550) $305, then there is a change in demand for same that is a decrease in demand by just only five units (300 – 295) and to compute how elastic the demand we shall calculate percentage changeCalculate Percentage ChangePercentage Change can be defined as a % change in value due to changes in the old number and new number and the values can either increase or decrease and so the change can be a positive value (+) or a negative value (-). read more which is $305/$1550, 20% while for the quantity it is 5/300 which is approximately 2%. Now, we shall divide the change in quantity demanded by a change in price, which shall be in a percentage of 2% / 20%, which is 0.1 times.

Hence, this implies that whenever the fire extinguisher price increases by 1%, they would lose the demand for the same only by 0.1%. Therefore, this can be stated that the demand for cooking oil is inelastic and can be considered an inferior good.

Inelastic Demand – Example #3

An analyst has gathered below details of product WMD from his last five years of history. It noticed that it barely demanded any drop-in quantity of the goods.

You are required to comment upon the type of elastic demand discussed in the above example with a simple graph.

As and when the product prices were increased, the quantity demanded remained the same for the product WMD even though there were significant increases in the product prices. Therefore, it can prove that the product’s demand is inelastic.

As can be seen in the above figure the price fluctuates but the demand remains the same.

Inelastic Demand – Example #4

In a small town, a newly incorporated company was inaugurated that started supplying electricity to the consumers for the first time. They first charged the people $1, and the town’s people were quite happy. They got addicted to the same power and started using many daily required electrical equipment. Therefore, the units demanded were 10,000 watts of electricity. When they raised the price to $5, the units demanded remained the same.

Comment upon the inelastic demand discussed here based on the above information, you must comment upon the inelastic demand discussed here.

It is observed that when there was a change in the price of the electricity from $5 to $1, which is a $4 rise, and in percentage, it was a 400% rise in the price whereas the quantity demanded remained the same that is no changes in demand of electricity. They observed that people started adopting new electrical equipment, making their lives easy and dependent on electricity. Hence, they never decrease electricity usage due to the rise in prices.

It is a clear case of inelastic demand whereby consumers prefer goods in the same quantity despite price changes, and here electricity can be regarded as a necessity.

Conclusion

Hence, from all of the above examples, we can conclude that inelasticity demand is nothing but minor changes or no changes in the demand whenever there is a change in the product’s price. Goods such as necessary goods, basic goods or daily requirements, or inferior goodsInferior GoodsAn inferior good is a category of products whose demand declines as consumer income rises. When a country’s economy grows, so does its citizens’ income, causing them to move to more expensive alternatives or brands while disregarding those they previously used to purchase.read more typically are inelastic. Without those goods, the consumers feel uneasy, and sometimes, they do not even notice the product’s price as they require it. Without it, their life will be uncomfortable.

Gasoline is the typical example of inelastic demand in nature, and its quantity changes in a lesser amount than the hike in its prices.

This article has been a guide to Inelastic Demand Examples. Here, we discuss the inelastic demand definition and the top 4 examples with a detailed explanation. You can learn more about economics from the following articles: –

  • Unitary Elastic Demand CurveElastic Demand ExamplesFormula of Income Elasticity of DemandFormula of Price Elasticity of Supply