29 May What is Perfectly Inelastic?
Posted at 07:22h in 0 Comments
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.
There are several factors that determine the demand for a product:
What does perfectly inelastic mean?
- 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.
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:
Example of perfectly inelastic
- 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.
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.