What is meant by inelastic demand? Compare it with perfectly inelastic demand.
The elasticity of demand determines the degree of responsiveness of the quantity demanded to the changes in price. It is the ratio of the percentage change in quantity demanded to the percentage change in price.
Demand is said to be inelastic if the percentage change in quantity demanded is less than the percentage change in prices. A decrease in price will result in a less than proportionate increase in the quantity demanded. The value of the elasticity coefficient in case of inelastic demand is less than 1.
INELASTIC | PERFECTLY INELASTIC |
• When demand is inelastic, the percentage change in quantity demanded is less than the percentage change in prices. | • When demand is perfectly inelastic, changes in price does not influence the quantity demanded. |
• The fall in price induces a small increase in the quantity demanded, while a rise in price induces a small fall in quantity purchased. | • The fall in price does not change the quantity demanded. The same quantity will be purchased regardless of the changes in price. |
• The value of the elasticity coefficient is less than 1 (Ed <1). | • The value of the elasticity coefficient is zero (Ed=0). |
• The demand curve will be a steep downward sloping curve.
| • The demand curve will be a straight line parallel to the Y-axis.
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• E.g., consumer durables | • E.g., life-saving drugs |
