Inelastic demand

Prices on the market are subject to certain price changes in all industries. Depending on how strong the reaction to a price increase or decrease is, one speaks of elastic or inelastic demand.

Definition / explanation

Inelastic demand is given when the price of a service / product increases or decreases, but the demand hardly changes.

example 1 - If the price of a product is increased by 20 percent and as a result the demand falls by only 2 percent, the demand is inelastic.

Example 2 - Another example of inelastic demand is gasoline prices. Even if these are significantly increased in price, the demand will only decline to a minor extent. This can be explained by the fact that many people are dependent on their car and therefore have to accept the price increase.

Price cuts also have only a minor effect on demand. If the price of gasoline or electricity falls, demand will hardly increase.

Inelastic demand

Summary

  • Demand is inelastic when price is changed and demand remains unchanged
  • Price increases cause only a slight decrease in demand
  • the more vital the product, the more inelastic the demand (e.g. food)
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