Inelastic refers to a situation in which the quantity of a good or service demanded does not significantly change when the price of the good or service changes. This means that the demand for the product is not particularly sensitive to price changes. A good example of inelastic demand is gasoline, since gasoline is a necessity for many people, they will continue to buy it even if the price increases. In contrast, elastic demand occurs when a small change in price results in a large change in demand. Generally, elasticity of demand is greater for goods that are considered luxuries or where there are many substitutes available. Understanding whether demand for a certain good is elastic or inelastic is important for businesses as it can help them to set optimal prices for their products.

Difference 101