When is a product considered inelastic?

A product is considered inelastic when consumers' quantity demanded does not significantly change in response to price changes. This is quantitatively represented by the price elasticity of demand being less than 1 in absolute value, which corresponds to greater than -1 on the elasticity scale. Thus, if the price elasticity is greater than -1, it indicates that the percentage change in quantity demanded is smaller than the percentage change in price, reflecting inelastic demand.

Inelastic products typically include necessities or unique products for which there are few substitutes, leading consumers to continue purchasing despite price increases. This concept is crucial for businesses that set prices, as it indicates how much to expect changes in revenue with price fluctuations. Understanding price elasticity helps firms navigate pricing strategies effectively.