What is inelastic demand?

Inelastic demand refers to a situation in which the quantity demanded of a good or service is relatively unresponsive to changes in its price. When the price of an inelastic good increases or decreases, the amount that consumers are willing to buy changes very little. This characteristic is often seen in essential goods—such as medication or basic food items—where consumers will continue to purchase them even if the price fluctuates.

This concept is critical in microeconomics, as it helps to understand consumer behavior and how it can impact overall market dynamics. Goods that consumers consistently need, regardless of price changes, exhibit inelastic demand. The elasticity of demand is measured by the price elasticity of demand coefficient, where a coefficient of less than one indicates inelastic demand.

Understanding the nature of inelastic demand is essential for businesses and policymakers, as it informs pricing strategies and revenue projections. For example, if a company sells a product with inelastic demand, raising prices could lead to increased revenue, as the decrease in quantity demanded will not be significant enough to offset the higher price.