Question

What is relatively inelastic demand? Explain with the help of an example and diagram.

Answer 1

Relatively inelastic demand (ε_p < 1):

• When percentage change in demand is proportionately lesser than percentage change in price then such demand is called relatively inelastic demand.
• For example, when price of commodity ‘G’ rises by 20 % and as a result its demand falls only by 5 % then its demand is called relatively inelastic demand.
• When price elasticity is less than 1, 0 then the demand is called inelastic demand and ε₀ < 1.
• This type of elasticity is found for g goods of daily needs such as food grains, milk, oil, etc.

In the diagram, on demand curve ‘DD₁’, when price rises by PP₁ amount, demand falls by MM₁ amount which is proportionately lesser than that of price.