Inelastic Demand Examples

Inelastic demand examples refer to those demands that remain unchanged no matter whether the prices of those products rise, fall, or remain the same.  Such static demand for products exhibits to businesses how important an item is for the buyers as they are ready to buy them, anyway.

Goods such as necessary goods, basic goods or daily requirements, or inferior goods typically are inelastic. Without those goods, the consumers feel uneasy, and sometimes, they do not even notice the product's price as they require it. Without it, their life will be uncomfortable.

• Inelastic demand is characterized by minor or no changes in the quantity demanded of a good when there is a change in the price of that good. 
• Gasoline is an example of a product with inelastic demand, as consumers tend to buy the same quantity even when the price increases.
• Inelastic demand is typically associated with necessary goods, basic goods, and daily requirements. Consumers often do not notice or pay attention to the price of these goods, as they are needed for comfort and convenience in everyday life.

Inelasticity of demand is contrary to what the law of demand states. Inelastic demand examples reflect the list of products that witnesses static demand irrespective of the changes in the prices. On the other hand, the law of demand favors the demand being inversely proportional to the demand, which means the demand rises and falls when the prices are low and high, respectively.

However, there may be instances when a minor change in the demand of the quantity or change in the behavior of consumers is counted as an inelastic demand. This insignificant inelasticity of demand can be determined by dividing the percentage change in quantity demanded by the percentage change in price.

Figuring out products with inelastic demands help businesses identify items that become a necessity of the buyers. Inelasticity in demand shows that customers need a particular product at any cost. Whether the prices rise to new heights or the prices drop to a significant low, they would purchase them.

The reasons behind such products having a static demand could be anything from that item being a basic requirement for households or individuals or a habit or addiction. Some of the goods that are found to have inelastic demand include cooking ingredients (whichever a consumer use), prescribed drugs, tobacco items out of addiction, etc.

The following are examples of inelastic demand.

Example #1

Gasoline is one such kind of product that the market has observed that even though the prices rise, consumers buy the same quantity. In the flip case, when gasoline prices drop, consumers again do not buy more and buy only the same quantity. You are required to discuss this scenario in terms of economics.

Solution

Consumers behave differently toward different products depending on their needs, requirements, and taste. Goods, therefore, have been classified as normal goods, luxury goods, and necessity goods in economics. Gasoline falls under necessity or inferior goods where consumers prefer to buy the same quantity despite changes in the price of gasoline whether it rises or falls. This kind of situation in economics is referred to as inelastic demand of elasticity, where the price fluctuates, but the quantity demand remains the same.

Example #2

Consumers have a lot of preferences in life for goods, but there are some inferior products that they do not have any wish but a need. For example, in one of the scenarios, XYZ Co. uses to make a unique product used in case of an emergency such as a fire extinguisher. As a result, the company observed unusual behavior for their product.

When the fire extinguisher prices were increased from $1550 to $1855, quantity demanded went from 300 units to 295 units.

Compute the demand elasticity of this product and comment upon the same.

Solution

It is observed here that in case there is an increase in the price of fire extinguishers, say by ($1655 – $1550) $305, then there is a change in demand for same that is a decrease in demand by just only five units (300 – 295) and to compute how elastic the demand we shall calculate percentage change which is $305/$1550, 20% while for the quantity it is 5/300 which is approximately 2%. Now, we shall divide the change in quantity demanded by a change in price, which shall be in a percentage of 2% / 20%, which is 0.1 times.

Hence, this implies that whenever the fire extinguisher price increases by 1%, they would lose the demand for the same only by 0.1%. Therefore, this can be stated that the demand for cooking oil is inelastic and can be considered an inferior good.

Example #3

An analyst has gathered below details of product WMD from his last five years of history. It noticed that it barely demanded any drop-in quantity of the goods.

You are required to comment upon the type of elastic demand discussed in the above example with a simple graph.

Solution

As and when the product prices were increased, the quantity demanded remained the same for the product WMD even though there were significant increases in the product prices. Therefore, it can prove that the product's demand is inelastic.

As can be seen in the above figure the price fluctuates but the demand remains the same.

Example #4

In a small town, a newly incorporated company was inaugurated that started supplying electricity to the consumers for the first time. They first charged the people $1, and the town's people were quite happy. They got addicted to the same power and started using many daily required electrical equipment. Therefore, the units demanded were 10,000 watts of electricity. When they raised the price to $5, the units demanded remained the same.

Comment upon the inelastic demand discussed here based on the above information, you must comment upon the inelastic demand discussed here.

Solution

It is observed that when there was a change in the price of the electricity from $5 to $1, which is a $4 rise, and in percentage, it was a 400% rise in the price whereas the quantity demanded remained the same that is no changes in demand of electricity. They observed that people started adopting new electrical equipment, making their lives easy and dependent on electricity. Hence, they never decrease electricity usage due to the rise in prices.

It is a clear case of inelastic demand whereby consumers prefer goods in the same quantity despite price changes, and here electricity can be regarded as a necessity.

This article has been a guide to what are the Inelastic Demand Examples. Here, we explain the concept along with discussing its top 4 examples in detail. You can learn more about economics from the following articles: -

• Unitary Elastic Demand Curve
• Elastic Demand Examples
• Formula of Income Elasticity of Demand
• Formula of Price Elasticity of Supply