What is the difference between perfectly inelastic and inelastic? In economics, the concepts of elasticity and inelasticity are used to describe how the quantity demanded or supplied of a good or service responds to changes in its price or other factors. In this article, we will explore the key differences between perfectly inelastic and inelastic demand or supply, and understand their implications in various economic scenarios.
Perfectly inelastic demand or supply refers to a situation where the quantity demanded or supplied does not change at all in response to changes in price or other factors. This means that the elasticity of demand or supply is zero. In other words, consumers or producers are completely insensitive to price changes, and the quantity remains constant regardless of the price.
On the other hand, inelastic demand or supply refers to a situation where the quantity demanded or supplied changes by a proportionally smaller amount than the change in price. In this case, the elasticity is less than one, indicating that the demand or supply is less responsive to price changes compared to perfectly elastic demand or supply.
Here are some key differences between perfectly inelastic and inelastic demand or supply:
1. Elasticity: Perfectly inelastic demand or supply has an elasticity of zero, while inelastic demand or supply has an elasticity less than one.
2. Price sensitivity: In perfectly inelastic demand or supply, consumers or producers are completely insensitive to price changes. In inelastic demand or supply, they are still sensitive to price changes, but to a lesser extent.
3. Quantity response: In perfectly inelastic demand or supply, the quantity remains constant regardless of the price. In inelastic demand or supply, the quantity changes, but by a proportionally smaller amount than the price change.
4. Examples: A classic example of perfectly inelastic demand is a necessary good like insulin for a diabetic patient. The patient needs a fixed quantity of insulin regardless of its price. An example of inelastic supply is the supply of natural gas, where the quantity supplied does not change significantly even if the price increases.
5. Market implications: In perfectly inelastic demand or supply, the market is considered to be a monopoly, as the quantity remains constant regardless of the price. In inelastic demand or supply, the market may still have some degree of competition, but the price is less sensitive to changes in quantity.
In conclusion, the key difference between perfectly inelastic and inelastic demand or supply lies in the elasticity and the responsiveness of quantity to price changes. Understanding these concepts is crucial for analyzing market behavior, determining pricing strategies, and predicting the effects of policy changes on the economy.
