The inelastic demand, refers to demands susceptible to price changes. It is also known as the price elasticity of demand, and it is related to the ability that a product may have to respond to a price change. It is important to know how to calculate it, since it is a widely used tool in accounting, this is what is known as elastic demand, while the inelastic demand is the one where the opposite occurs, that is, that does not change or does not show sensitivity to price changes.
To really know this concept, it is necessary to know its origin, the formula and the way to calculate it, all these elements that we will present below.
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The elastic demands and inelastic are two sides of the same coin. For this reason, it is important to know a little more about elasticity in the economy to better understand these terms.
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In this article you will find:
Source
This concept like many other important elements of the economy was born in the nineteenth century, a French economist named Auguste Cournot could notice that the demand was closely related to price, that is, demand falls when the price of any good increases, while other variables and other prices remain the same constant.
It is a theme that, like many others, developed over time and in 1890 Alfred Marshall managed to improve on the publication of his book called Principles of Economics.
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Inelastic and elastic demand characteristics
There are a large number of determining factors within inelastic demand, which can occur at a certain point in time, among which the following stand out:
- The inelastic demand is greater in those products or goods that are characterized by having more and better substitutes than in those that do not have substitutes.
- Elastic demands tend to be projected in time, so they are usually greater than in the short term.
- Those goods on which consumers spend more than their budgets generally have more elastic demand than those on which little money is spent.
Inelastic demand
Remembering that the elasticity of demand is known as the percentage change with respect to the quantity of demand, at the moment in which the price of some good or product varies.
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For this reason, when the demand is inelastic, it refers to the fact that it does not settle or is not susceptible to the change in price, for example, if the The price of a certain product rises by a percentage of 10% and its demand falls by less than 10%, then it is said that it is a demand inelastic.
Inelastic demand formula
To better understand this equation, it is worth highlighting the following:
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- P is the price and QD refers to the quantity demanded
- It is worth noting that when the calculation gives <1 it is said that the demand is inelastic, this means that the quantity demanded is less with respect to the price variation
When does inelastic demand occur?
It is important to know the characteristics or the occasions in which an inelastic demand occurs in order to know it better, among which we can name the following:
- It occurs when there are not many substitutes, this causes the elasticity to be little or less than in other cases.
- It also stands out for being more inelastic the shorter the time.
Perfect inelastic demand
This occurs when the demand does not have any type of variation despite the change in prices, in this type of case when applying the formula the result will be zero. This occurs in very few cases and generally with products such as medicines.
Products with inelastic demand
We already put in the example of medicines such as insulin, although it should be noted that there are products in which although the inelastic demand is not perfect, it is still the case, for example:
Cigarettes
This is because even though smoking taxes are imposed or the price increases, those smokers will be willing to pay them, motivated by their addiction to nicotine.
Gasoline
Due to the importance of this fuel for daily life, people find it necessary to buy gasoline at the price It is to be able to move from one point to another, which is especially important to develop the activities productive.
Other cases
Medicines and some products where their manufacturers have built a monopoly as in the case of Apple or IPhone computers, which people pay the price that is asked of them and even if it increases the same will pay.
This allows us to understand the importance of these concepts both for the economy and for other applications related to marketing and advertising.
