Inelastic

AAA

DEFINITION of 'Inelastic'

An economic term used to describe the situation in which the supply and demand for a good or service are unaffected when the price of that good or service changes. Inelastic means that when the price goes up, consumers’ buying habits stay about the same, and when the price goes down, consumers’ buying habits also remain unchanged.

INVESTOPEDIA EXPLAINS 'Inelastic'

Economics textbooks define “inelastic” as meaning that a 1% change in the price of a good or service has less than a 1% change on the quantity demanded or supplied. For example, if the price of an essential medication changed from $200 to $202 (a 1% increase) and demand changed from 1,000 units to 995 units (a less than 1% decrease), the medication would be considered an inelastic good. If the price increase had no impact whatsoever on the quantity demanded, the medication would be considered perfectly inelastic. Economics textbooks depict the demand curve for a perfectly inelastic good as a vertical line, because the quantity demanded is the same at any price. Supply could be perfectly inelastic in the case of a unique good such as a painting. No matter how much consumers are willing to pay for it, there can never be more than one original version of that painting.

By way of contrast, an elastic good or service is one for which a 1% price change causes more than a 1% change in the quantity demanded or supplied. Most goods and services are elastic because they are not unique, but have substitutes. If the price of a plane ticket increases, fewer people will fly and more people will stay home or drive. A good would need to have numerous substitutes to experience perfectly elastic demand.

RELATED TERMS
  1. Advertising Elasticity Of Demand ...

    A measure of a market's sensitivity to increases or decreases ...
  2. Arc Elasticity

    The elasticity of one variable with respect to another between ...
  3. Demand Elasticity

    In economics, the demand elasticity refers to how sensitive the ...
  4. Supply

    A fundamental economic concept that describes the total amount ...
  5. Price Elasticity Of Demand

    A measure of the relationship between a change in the quantity ...
  6. Income Elasticity Of Demand

    A measure of the relationship between a change in the quantity ...
Related Articles
  1. Economics Basics
    Economics

    Economics Basics

  2. Adam Smith And
    Entrepreneurship

    Adam Smith And "The Wealth Of Nations" ...

  3. Introduction To Supply And Demand
    Economics

    Introduction To Supply And Demand

  4. Understanding Supply-Side Economics
    Economics

    Understanding Supply-Side Economics

comments powered by Disqus
Hot Definitions
  1. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
  2. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  3. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  4. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  5. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  6. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
Trading Center