When a product has a relatively inelastic demand, a 10% rise in price would cause a decline in quantity demanded that is smaller in absolute value: for example, 8%. If the demand for a product were perfectly inelastic, a rise in price would have no effect on demand at all. For example, a 10% rise in price would cause a 0% decline in quantity. The demand curve for the product would be completely vertical.
Could consumers adjust to a rise in the product's price? Decide whether you think the gasoline has a perfectly inelastic demand. To say it another way, decide whether you think the demand curve will be vertical, or just steep?
Think about what might be a substitute for gasoline. Be creative, realize that some substitutes are quite like the product they replace (tea is a hot beverage containing caffeine), but some are not (a letter might substitute for a telephone call).
When a product has a relatively inelastic demand, a 10% rise in price would cause a decline in quantity demanded that is smaller in absolute value: for example, 8%. If the demand for a product were perfectly inelastic, a rise in price would have no effect on demand at all. For example, a 10% rise in price would cause a 0% decline in quantity. The demand curve for the product would be completely vertical.
Could consumers adjust to a rise in the product's price? Decide whether you think the gasoline has a perfectly inelastic demand. To say it another way, decide whether you think the demand curve will be vertical, or just steep?
Think about what might be a substitute for gasoline. Be creative, realize that some substitutes are quite like the product they replace (tea is a hot beverage containing caffeine), but some are not (a letter might substitute for a telephone call).
