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If price elasticity of demand is calculated to be less than 1, the good is said to be inelastic. An inelastic good will respond less than proportionally to a change in price; for example, a price increase of 40% that results in a decrease in demand of 10%. Goods that are inelastic often have at least one of the following characteristics:
For example, when demand is perfectly inelastic, by definition consumers have no alternative to purchasing the good or service if the price increases, so the quantity demanded would remain constant. Hence, suppliers can increase the price by the full amount of the tax, and the consumer would end up paying the entirety.
Perfectly inelastic supply: This is when the E s formula equals to zero, meaning that there is no change in the supply when there are price changes. This can be the case where there is a limited quantity of supply, for example, if there is only 200 of a certain product made and there will never be any more made, there will be no increase or ...
Perfectly inelastic demand is represented by a vertical demand curve. Under perfect price inelasticity of demand, the price has no effect on the quantity demanded. The demand for the good remains the same regardless of how low or high the price. Goods with (nearly) perfectly inelastic demand are typically goods with no substitutes.
In economics, the total revenue test is a means for determining whether demand is elastic or inelastic. If an increase in price causes an increase in total revenue, then demand can be said to be inelastic, since the increase in price does not have a large impact on quantity demanded. If an increase in price causes a decrease in total revenue ...
For examples of elasticities of particular goods, see the article section, "Selected price elasticities". The elasticity of demand usually will vary depending on the price. If the demand curve is linear, demand is inelastic at high prices and elastic at low prices, with unitary elasticity somewhere in between.
For example, total revenue will rise due to an increase in quantity if the percentage increase in quantity is larger than the percentage decrease in price. The percentage change in the price and quantity determine whether the demand for a product is elastic or inelastic .
Money supply is determined by central bank decisions and willingness of commercial banks to loan money. Money supply in effect is perfectly inelastic with respect to nominal interest rates. Thus the money supply function is represented as a vertical line – money supply is a constant, independent of the interest rate, GDP, and other factors.