Perfectly inelastic refers to a situation where the quantity demanded or supplied of a good is completely unresponsive to changes in its price. In other words, the quantity does not change at all regardless of the price level.
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When demand or supply is perfectly inelastic, the price elasticity is equal to zero, indicating that quantity is completely unresponsive to price changes.
For a good with perfectly inelastic demand, consumers will buy the same quantity regardless of the price, leading to a vertical demand curve.
Perfectly inelastic supply means producers will sell the same quantity no matter the price, resulting in a vertical supply curve.
Goods with no close substitutes or that are necessities are more likely to have perfectly inelastic demand, such as insulin for diabetics.
Factors of production like land are often considered to have perfectly inelastic supply in the short run, as the quantity available cannot be quickly changed.
Review Questions
Explain how the concept of perfectly inelastic demand relates to the price elasticity of demand.
When demand is perfectly inelastic, the price elasticity of demand is equal to zero. This means that the quantity demanded does not change at all in response to a change in price. The demand curve for a perfectly inelastic good is vertical, indicating that consumers will buy the same quantity regardless of the price level. This is in contrast to elastic demand, where quantity demanded is highly responsive to price changes.
Describe the characteristics of goods that tend to have perfectly inelastic supply.
Goods with perfectly inelastic supply are those where the quantity supplied does not change in response to price changes. This is often the case for factors of production, such as land, in the short run. The supply of these goods is fixed, and producers cannot quickly adjust the quantity they are willing to sell. As a result, the supply curve for perfectly inelastic goods is vertical, indicating that the same quantity will be supplied at any price level.
Evaluate the implications of perfectly inelastic demand or supply on the equilibrium price and quantity in a market.
In a market with perfectly inelastic demand or supply, changes in the other factor will have a significant impact on the equilibrium. For example, if demand is perfectly inelastic, any shift in the supply curve will result in a large change in the equilibrium price, but no change in the equilibrium quantity. Conversely, if supply is perfectly inelastic, any shift in the demand curve will lead to a large change in the equilibrium price but no change in the equilibrium quantity. This highlights the importance of understanding the degree of elasticity when analyzing market equilibrium and the effects of changes in market conditions.
A measure of how responsive the quantity demanded of a good is to a change in its price, calculated as the percentage change in quantity divided by the percentage change in price.
A measure of how responsive the quantity supplied of a good is to a change in its price, calculated as the percentage change in quantity divided by the percentage change in price.