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💸principles of economics review

key term - Perfectly Inelastic

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Definition

Perfectly inelastic refers to a situation where the quantity demanded or supplied of a good or service is completely unresponsive to changes in its price. In other words, the quantity demanded or supplied remains constant regardless of the price level.

5 Must Know Facts For Your Next Test

  1. Perfectly inelastic demand or supply has a price elasticity coefficient of 0, indicating that quantity is unaffected by price changes.
  2. Goods with perfectly inelastic demand or supply are often essential items like life-saving medications or unique collectibles with no close substitutes.
  3. In the context of constant elasticity, perfectly inelastic demand or supply is represented by a linear, horizontal line on a graph, showing no change in quantity at any price level.
  4. Perfectly inelastic demand or supply is one of the polar cases of elasticity, the other being perfectly elastic, which has an infinite elasticity coefficient.
  5. Understanding the concept of perfect inelasticity is crucial for analyzing the impact of price changes on quantity demanded or supplied in various economic models and scenarios.

Review Questions

  • Explain how the concept of perfectly inelastic demand or supply relates to the polar cases of elasticity.
    • Perfectly inelastic demand or supply represents one of the two polar cases of elasticity, the other being perfectly elastic. Perfectly inelastic refers to a situation where the quantity demanded or supplied is completely unresponsive to changes in price, with a price elasticity coefficient of 0. This contrasts with perfectly elastic, where the quantity demanded or supplied is infinitely responsive to price changes. These two extreme cases form the boundaries of the elasticity spectrum and are essential for understanding the various degrees of responsiveness in economic models.
  • Describe the characteristics of goods or services that typically exhibit perfectly inelastic demand or supply.
    • Goods or services with perfectly inelastic demand or supply are often essential items with no close substitutes. Examples include life-saving medications, unique collectibles, or basic necessities like water or electricity in the short run. These goods are considered indispensable, and their quantity demanded or supplied remains constant regardless of price changes. This is because consumers have no alternative options and must purchase the good or service at any price, or producers are unable to adjust the quantity supplied in the short term due to capacity constraints or other factors.
  • Analyze how the concept of perfect inelasticity is represented in the context of constant elasticity models and how it differs from other elasticity cases.
    • In the context of constant elasticity models, perfectly inelastic demand or supply is represented by a linear, horizontal line on a graph, indicating that the quantity remains constant regardless of the price level. This is in contrast to other elasticity cases, such as perfectly elastic (represented by a vertical line) or unit elastic (represented by a downward-sloping line with a constant slope). The constant elasticity property means that the price elasticity coefficient remains the same across all price levels, with perfectly inelastic having a coefficient of 0, perfectly elastic having an infinite coefficient, and unit elastic having a coefficient of 1. Understanding these distinctions is crucial for analyzing the impact of price changes on quantity demanded or supplied in various economic scenarios.