Saturday, September 16, 2017

Inelastic Demand

Inelastic Demand
Elasticity is all about the changes.
Elasticity Cheat Sheet here

**You must know the determinants.

Determinants of Inelastic Demand? 

Low Price 
The price of my favourite candy bar increased by 10%, I didn't notice.
  (My demand for my favourite candy bar is inelastic as a 10% price increase is such a low amount I don't notice it or let it change my preference)

The price of black beans increased by 20% and I don't care. 
(I love black beans and consider them a necessity in my kitchen. My demand for Shitto is inelastic)
I've eaten a lot of Shitto in my life.
I'm a Shitto magnet
Ok, that's enough.

Short (Time) Horizon
Sometimes you don't have the capacity to be shopping around for the lowest price.
(My demand for a toilet is inelastic when I have to go bad)

If a good is addictive then your desire for that good doesn't diminish very much if the price increases.
Therefore your demand for the good is inelastic.

Low Number of Substitutes
Often if something is unique or if the choices are limited then your demand will be inelastic.

**Know that the Inelastic Demand curve is drawn very steeply.
When Supply decreases the price for Petrol increases by a larger amount that the Quantity Demand,
There is no close substitute for Petrol, therefore the Demand is Inelastic
** Know that any and every demand curve has an elastic section and an inelastic section.
Recognise, that the inelastic section of the curve is at the lower prices, this often causes confusion but it shouldn't,,,
at low prices a 10% change in the price does' t really affect the amount we buy,, or our quantity demand.

**Know that Inelastic Demand means that the percentage change in quantity demand is less than the percentage price change. 
We can see that with a price increase, quantity demand has changed less
When you are demand inelastic you just don't react as much to a price change

** Know Perfectly Inelastic demand is that no matter the Price change (great or small) the same amount of a good will be bought.
** Understand that the PED of a perfectly inelastic curve is zero and that the PED for a relatively Inelastic demand is between zero and 1.

Perfectly Inelastic PED is zero (0) 
This makes sense in that with a price change there is a (0) % change in the quantity demanded

Relatively Inelastic Demand is a number between zero (0) and 1
Inelastic Demand = 0 < PED < 1
This makes sense as the % change in quantity demand is less than the % change in price  

No comments:

Post a Comment