If quantity demanded is completely unresponsive to changes in price, demand is perfectly inelastic.
Inelastic demand is a situation in which the quantity demanded of a good or service changes very little in response to a change in price. Unit elastic demand is a situation in which the quantity demanded of a good or service changes proportionally to a change in price. Elastic demand is a situation in which the quantity demanded of a good or service changes more than proportionally to a change in price.
Perfectly inelastic demand is a situation in which the quantity demanded of a good or service does not change at all in response to a change in price. This is the most extreme form of inelastic demand.
Here are some examples of perfectly inelastic demand:
- Essential goods, such as food and water. People will still need to buy these goods even if the price goes up.
- Goods with few substitutes. If there are no other goods that can be used in place of a good, then the demand for that good will be perfectly inelastic.
- Goods that are a small part of a person’s budget. If a good only makes up a small part of a person’s budget, then they may not be very sensitive to changes in price.
Perfectly inelastic demand is rare, but it does exist. It is important to understand perfectly inelastic demand because it can have a significant impact on the economy. For example, if the demand for a good is perfectly inelastic, then a change in the price of that good will have a large impact on the total revenue that producers earn.