Definition: Inelastic is an economic term that refers the demand or supply of a good or service that is not influenced by changes in the price of the good or service.
What Does Inelastic Mean?
What is the definition of inelastic? In other words, as the price of a good or service goes up, the demand or supply of the good stays the same. The amount that the demand changes as a result of a change in price is referred to as its elasticity.
Some goods and service are necessities in life and consumers have to purchase these goods at any price level. Thus, as the price of the good increases, the demand stays the same. Likewise, suppliers are willing to meet the demand as the selling price increases causing the supply to stay the same as well. These types of goods are considered to be perfectly inelastic. In other words, it doesn’t matter how much the price changes, the demand will always stay the same.
Other goods are slightly more responsive to changes in price but don’t have a direct relationship between price and demand. Thus, a large increase in price might only cause the demand of these products to decrease slightly.
When the price of a good goes up and consumer demand doesn’t respond significantly it’s considered inelastic. Inelasticity is depicted as the slope of the demand curve and the closer it is to being vertical, the closer the demand for the product is to being perfectly inelastic. Oppositely, the closer a demand curve is to being completely horizontal the less inelastic it is and the closer it gets to being perfectly elastic. This is seen in goods that have many similar substitutes.
Let’s look at an example.
Example
Perfect inelasticity is hard to achieve because most products have substitutes or a maximum price consumers are willing to pay for it. If a medicine used to treat cancer was discovered, almost all cancer patients would want to purchase it.
Let’s assume this medicine cost $450 per pill and the demand was 1,000,000 pills per year. Because this is an inelastic good, a change in the price will not affect the demand because cancer patients need this medicine. Therefore, if the price were raised to $700 per pill, the demand for the product would still be 1,000,000.
This is a rare example because this drug doesn’t exist. Most drugs have generic substitutes that increase the elasticity of the product causing there to be an indirect correlation between price and demand.
Summary Definition
Define Inelasticity: Inelastic means the supply and demand of a product are not easily influenced by price.
