Inelastic

Business, Legal & Accounting Glossary

Definition: Inelastic




Full Definition of Inelastic


Inelastic is an economic term that is used to identify a situation where demand and supply of a specific good (or service) remain unchanged even if the price of that good (or service) alters.

If changes in price do not affect supply and demand of a good in any manner, it is regarded as perfectly inelastic. A life-saving drug makes an ideal example of inelastic demand. The Price of a drug does not affect its demand.

The elasticity of supply or demand can be expressed by the following equation:

Elasticity = (percent change in quantity/percent change in price)

Inelastic demand translates into a result of less than 1.

Demand

Demand is an economic principle that explains a consumer’s want and disposition to pay a price for a particular service or good. All other factors remaining unchanged, an increase in the price of a specific good, results in a decrease in demand.

Market demand is aggregate of the total demand of a certain population. Business spend a large amount of money to ascertain the quantum of demand in a population group for services and products. A faulty estimation may result in considerable financial losses of businesses.

Defensive Company

It is described as a company whose earnings and sales continue to be stable during fluctuations in the economy. An example of a defensive company is an electricity supply company. The company’s product enjoys inelastic demand. Stocks of defensive companies are termed defensive stock by equity market investors.

Supply

It is an economic concept that accounts for the aggregate of a particular service or good that is usable to consumers. Producers will increase supply with an increase in demand. This is done to maximize profits. A particular good or service has its own demand dependent on utility and price. Personal preference also affects demand. An increase in the supply of a specific product soon results in a fall of the price of that product.


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Definition Sources


Definitions for Inelastic are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 29th March, 2020 | 3 Views.