29 May Perfectly Inelastic
What is Perfectly Inelastic?
Definition: When the price of a product has no effect on the quantity sold, the demand for it is said to be perfectly inelastic. Similarly, a product’s supply is also said to be perfectly inelastic if the quantity that is available for sale does not increase even if buyers are willing to pay higher prices.
What does Perfectly Inelastic mean?
There are several factors that determine the demand for a product:
- Price – in most instances, higher prices lead to lower demand for a product. If prices are lowered, demand usually increases.
- Price of alternatives – if it is possible for a product to be substituted by another, buyers are likely to switch over if prices are raised.
- Income – if buyers have more money at their disposal, an increase in prices may not impact demand very much.
- Tastes – changing tastes can lower or increase the demand for a certain product.
- Expectations – if buyers expect prices to rise in the future, they will buy more of the product.
- Number of buyers – an increase in the number of buyers will usually lead to an increase in demand.
It is apparent that the demand for a product is not dependent on any one factor. However, in certain situations, demand (or supply) could remain exactly the same despite a change in price. This is referred to as demand (or supply) being perfectly inelastic.
The following graphs will help to explain the meaning of perfectly inelastic.
The chart above illustrates a situation when supply is perfectly inelastic. The vertical line indicates that the quantity supplied will remain constant even if the price that buyers are willing to pay goes up.
This chart represents a situation where the demand for a product is perfectly inelastic. The quantity demanded will be the same at every price point.
Example of Perfectly Inelastic
A good would be said to have perfectly inelastic demand if buyers were willing to buy it regardless of its price. Examples of such goods are:
- Life-saving drugs – a person would be willing to pay very high prices for a medicine that promised to cure a life-threatening disease.
- Essential food items – if food is in short supply, people would pay high prices to avoid starvation.
Similarly, the supply of certain items is perfectly inelastic. This includes works by famous artists. That’s why art lovers are willing to pay millions of dollars for well-known paintings. Amedeo Modigliani’s painting titled “Nu couche” reportedly sold for $157.2 million recently. In 2017, Leonardo da Vinci’s “Salvator Mundi” sold for $450 million.
If the quantity supplied or demanded remains the same regardless of the change in price, the supply or demand for the good in question is said to be perfectly inelastic.