What is perfectly inelastic demand? How is it identified? What type of goods and the demand for them present typical examples of this economic phenomenon? Read the following article to find out.
Economics is the science, which studies human behavior as a relationship between scarce resources and ends which have alternative uses. It does not attempt to pick out certain kinds of behavior, but focuses attention on a particular aspect of behavior, the form imposed by the influence of scarcity. ― Lionel Robbins, Baron Robbins
Indeed, had there not been the universal phenomena of scarcity and choice, the intriguing yet practical subject of economics wouldn’t have existed. Some of you must have been surprised when I called economics an intriguing yet practical subject – after all, economics is a monotonous journey through principles, theories and characteristics of resources and human behavior with relation to such resources, isn’t it? Well, that was my opinion too during the initial stages of my brush with this subject.
However, the more I studied it, the deeper I got involved with its simplicity and pragmatic approach in understanding mankind’s efforts in striking an equilibrium between his unlimited wants and their satisfaction via media the limited or scarce resources. Well, that’s enough about economics. Moving on to perfectly inelastic demand, most of you would be aware that elasticity of demand can take two forms – price elasticity and income elasticity. This article focuses on both these perspectives.
The term elasticity is used to denote the ratio of the percent change in one economic variable in response to a percent change in another economic variable. In terms of demand, elasticity denotes either a proportion of change in the demand for a particular commodity in response to a change in its price (price elasticity) or with response to a change in the income of the consumer for that particular good (income elasticity).
In terms of price elasticity, a commodity is said to have a perfectly inelastic demand when the demand for it remains the same irrespective of the change in its price. For instance, in case of necessities such as staple food grains, no matter how much the price rises or falls, the quantity demanded by an individual would remain the same – the consumer will not start eating more if grains become cheaper nor would he reduce his consumption if they become dearer. Instead, in case of a rise in the price of such a necessity, the consumer may cut down on the consumption of other commodities to adjust his budget such that the same quantity of food grain is absorbed despite a rise in price.
In terms of income elasticity, a commodity is said to have a perfectly inelastic demand if the quantity demanded or consumed of it does not respond to a change in the income of the consumer. Such commodities are usually known as sticky goods and consist mainly of necessities. As cited in the above example, such goods are accommodated in the budget by adjusting the expenditure on other commodities in case of an increase or decrease of the consumer’s income. Mostly, when we talk of elasticity or inelasticity of demand, it is in terms of price elasticity.
When plotted on a graph with the Y-axis depicting the price points and the X-axis depicting the quantity points, the demand curve will take a perpendicular course, parallel to the price line with the quantity remaining fixed all along (see illustration on top right corner). This shows that even as the curve rises in response to higher price points, the quantity demanded remains at a fixed and constant value. Since the demand curve touches and intersects the X-axis, its coordinate value will be 0.
where, Edstands for elasticity of demand.
Hope that help you get a clear idea of what perfectly inelastic demand is all about. In order to get a better understanding of the entire implications and mechanism behind elasticity and inelasticity, I would suggest that you get your concepts on the law of demand and demand and supply analysis cleared. It is the combined forces of the laws of supply and demand that determine the economic course for a given period and it is these forces that are artificially influenced and deliberately intervened by the political and economical authorities of a system to when the economy or a part of it is on the verge of swerving out of control.