Examples of Products with Low (Inelastic) Price Elasticity

📚 Quick Study Guide

• 💰 Price elasticity of demand (PED) measures how much the quantity demanded of a good changes when its price changes.
• 📉 Inelastic demand means that the quantity demanded changes very little when the price changes. This is typically when PED < 1 (in absolute value).
• 🧮 Formula for PED: $PED = \frac{\% \ change \ in \ quantity \ demanded}{\% \ change \ in \ price}$
• ⛽ Necessities like gasoline, prescribed medications, and basic food items often have inelastic demand.
• 💡 Addictive goods like cigarettes often have inelastic demand.
• 📈 Goods with few substitutes tend to have inelastic demand.
• ⏰ In the short term, demand is often more inelastic because consumers need time to adjust their consumption habits.

Practice Quiz

1. Which of the following products is MOST likely to have inelastic demand?
   1. A) Luxury sports car
   2. B) Designer handbag
   3. C) Insulin for diabetics
   4. D) Movie tickets
2. If the price of gasoline increases by 20% and the quantity demanded decreases by 5%, what is the price elasticity of demand?
   1. A) -4
   2. B) -0.25
   3. C) 4
   4. D) 0.25
3. Which factor MOST contributes to a product having inelastic demand?
   1. A) Many available substitutes
   2. B) It is considered a luxury good
   3. C) It is a necessity
   4. D) Consumers have a lot of time to adjust to price changes
4. A pharmaceutical company increases the price of a life-saving drug by 50%, and the quantity demanded decreases by only 2%. What does this indicate about the demand for the drug?
   1. A) Demand is elastic
   2. B) Demand is perfectly elastic
   3. C) Demand is inelastic
   4. D) Demand is unit elastic
5. Which of the following is an example of a product that often has inelastic demand due to addiction?
   1. A) Bottled water
   2. B) Cigarettes
   3. C) Gourmet coffee
   4. D) Streaming services
6. In the short term, the demand for which product is MOST likely to be inelastic?
   1. A) New cars
   2. B) Airline tickets
   3. C) Electricity
   4. D) Furniture
7. If the price elasticity of demand for a product is 0.15, this means that demand is:
   1. A) Perfectly elastic
   2. B) Elastic
   3. C) Unit elastic
   4. D) Inelastic