Demand is price inelastic when the percentage change in quantity demanded is smaller than the percentage change in price. In economics, that means the absolute value of price elasticity of demand is less than 1. If demand is inelastic at the relevant price, raising price increases total revenue—but it does not necessarily increase profit.
What does inelastic demand mean?
Price elasticity of demand measures how responsive the quantity consumers demand is to a change in price. Inelastic demand means consumers’ quantity demanded responds proportionally less than the price changes. For example, a 10% price rise might lead to a decline in quantity demanded of less than 10%.
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Because price and quantity demanded usually move in opposite directions, the signed elasticity is generally negative. To classify demand, introductory economics often uses its absolute value, ignoring the minus sign:
- Inelastic: absolute elasticity is less than 1.
- Unit elastic: absolute elasticity equals 1.
- Elastic: absolute elasticity is greater than 1.
OpenStax summarizes the threshold this way: “Elasticities that are less than one indicate low responsiveness to price changes and correspond to inelastic demand or inelastic supply.” See OpenStax, Principles of Economics 3e, §5.1.
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How do you calculate price elasticity of demand?
Divide the percentage change in quantity demanded by the percentage change in price:
Price elasticity of demand = percentage change in quantity demanded ÷ percentage change in price
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For classification, compare the absolute value of the result with 1. Use percentage changes rather than raw changes in units: a drop of 10 items means something different when starting quantity is 20 than when it is 1,000.
Example: a price increase for bananas
A worked example in the NCERT-based SATHEE chapter considers a banana price rising from 5 to 7, a 40% increase when calculated against the initial price. If quantity demanded falls by 20%, the absolute elasticity is 20% ÷ 40% = 0.5. Because 0.5 is below 1, demand is inelastic over that example’s interval.
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This is a finite-change calculation using the initial price as the base. When calculating elasticity from real data, make sure the percentage-change convention is clear; using different bases can produce different results for the same price movement.
What happens to revenue when demand is inelastic?
Total revenue is price multiplied by the number of units sold (P × Q). When demand is inelastic at the relevant price, raising price increases total revenue: the percentage decline in units sold is smaller than the percentage increase in price. A price decrease has the reverse effect under the same local condition.
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Revenue is not the same as profit. Profit also depends on costs, so a price increase that raises revenue may still fail to raise profit if costs change or other business conditions matter. The revenue rule describes the relationship between price and quantity sold, not the full financial outcome.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Are some goods always inelastically demanded?
No. Elasticity is an estimate for a particular market and situation, not an inherent, permanent label for a product. It can vary with the price range or point on the demand curve, the time period, the market definition, and the calculation method. The same good may have inelastic demand at one price and elastic or unit-elastic demand at another.
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| Category | Elasticity estimate | How to interpret it |
|---|---|---|
| Electricity | 0.20 | Below 1; an inelastic example in the cited table. |
| Gasoline | 0.35 | Below 1; an inelastic example in the cited table. |
| Restaurant meals | 2.27 | Above 1; an elastic example in the cited table. |
The table draws on studies whose individual dates are not identified in the cited page excerpt. Treat these figures as selected textbook examples, not as a forecast for a particular household, business, location, or current price. When comparing estimates, align the market, price range, time period, and calculation method.
How should you use an inelastic-demand estimate?
For a practical decision—such as estimating the likely sales impact of a price change—use an elasticity estimate that matches the market and conditions you care about. Check what product or customer group was measured, the price range, the time period, and how percentage changes were calculated. A number from a broad textbook category may help explain the concept, but it cannot by itself predict the response in a specific case.
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