The first type of elasticity we take a closer look at is known as a relatively inelastic demand.
In the case of a relatively inelastic demand, the percentage change in price is greater than the percentage change in quantity demanded. And when the percentage change in price is greater than the percentage change in quantity demanded, the price elasticity coefficient will have a value of less than 1.
In other words:
If ep < 1, we have a relatively inelastic demand.
In the price elasticity table, goods and services with a relatively inelastic demand are things such as salt, medical care, tobacco products and petrol (fuel). They all have an elasticity coefficient of less than 1. What this means is that the quantity demanded is not highly sensitive to a change in the price.
Different price elasticities
|Goods and services||Price elasticity coefficient||Goods and services||Price elasticity coefficient|
|Electricity (Households)||0,13||Private education||0,1|
|Tobacco products||0,45||Restaurant meals||2,27|
|Fuel (petrol)||0,6||Lamb and mutton||2,65|
On the basis of this, we can argue that people are relatively unresponsive or insensitive to adjusting their quantity demanded if the price changes. Note that unresponsive and insensitive in this sense means that people find it difficult to change their quantity demanded of the good, and not that they do not become upset if the price changes.
In the case of fuel (petrol), which has a price elasticity of 0,6 in the table, this implies that a 10% rise in the price of fuel will reduce the quantity demanded by 6% – which is less than the percentage change in price. This is referred to as a relatively inelastic demand.
Graphically, we can illustrate a relatively inelastic demand as follows:
Inelastic demand: % change in price > % change in quantity demanded and ep <= 1
Relatively inelastic demand
Examples are: salt, coffee, medical care and beer.
A 10,5% increase in price reduces the quantity demanded by 5,1%. The lower the price elasticity of demand, the steeper the demand curve will be.