The term inelastic demand refers to conditions when a change price causes a minimal change in demand. In other terms, inelastic demand takes place when the demand of a particular product does not have much effect on the price (Miller & Alberini 2016). Often, goods with inelastic demand are essential goods that have little or entirely lack substitutes. The three goods of choice that have inelastic demand are electricity, water and medicine. The three goods are very essential and their demand rarely relies on the price. Firms dealing with utility products usually exercise monopoly in their operations because consumers will always need their use in their daily activities. Regardless of the price, human beings cannot stay without water and as a result, they will always buy water. Water does not have a substitute and that is why companies dealing in water distribution determine the price according to their preferences. The same applies when it comes to electricity. People always need electricity be it at home or at work (Miller & Alberini 2016). Prescription medicine on the other hand is an inelastic good since people always need these medicine when they fall ill. In the case when one gets ill, they are not bound to wait for the price to go down since their life will be in danger.
Understanding the association between elasticity and total revenue is integral in comprehending the reasons as to why some goods go and sale and others do not. The relationship between the two shows that in the case whereby a price of a good goes up while the total revenue falls, the demand of the product becomes elastic since the price has a direct effect on the quantity demand (Miller & Alberini 2016). Usually, in elastic products, an increase in price increases the revenue because the quantity demand is also affected. However, in inelastic products, an increase in price also increases revenue while the quantity demand is not affected.
References
Miller, M., & Alberini, A. (2016). Sensitivity of price elasticity of demand to aggregation, unobserved heterogeneity, price trends, and price endogeneity: Evidence from US Data. Energy Policy, 97, 235-249.
0
582