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Special Items

Price inelastic

Where the elasticity of the product / service is less than 1 ie the percentage change in demand is less than the percentage change in price. This occurs when there are few close substitutes, or only a small percentage of income is spent on the product eg bread, they are addictive, or they are paid for by someone else eg company cars. In such cases demand / customers are said to be price-insensitive. With inelastic products where demand is not sensitive to price, price changes hardly have any effect on demand. An increase in price leads to a smaller decrease in the quantity demanded. Firms with price inelastic products will, therefore, be tempted to push the prices up. In this case, price increases will boost revenue and are also likely to boost profits.

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