Inelastic Demand:

The demand for a commodity is said to be inelastic when the price elasticity of demand coefficient (without the negative sign) is less than one (1). In this case the change in price causes a comparatively smaller change in quantity demanded or the percentage change in price is greater than the percentage change in quantity.

Example

The quantity demanded responded by increasing from 80 to 90 units to a reduction in the price of a good from ¢136,000 to ¢102,000. Calculate the own price elasticity of demand and interpret your results.

Solution

ΔP = ¢102,000 - ¢136,000 = - ¢34,000

ΔQ = 90 - 80 = 10

PED = (ΔQ/ ΔP) x (P/Q)+ = (10/-34,000) x (136,000/80) = -0.5

Since PED without the negative sign of 0.5 is less than 1, demand for the product is ineleastic.