Answer to Question #268282 in Microeconomics for Shaqs

Question

Briefly describe any four (4) factors that could result in a product having

an inelastic demand

Answer 1

1. Little competition- if a firm has monopoly power, then it has the ability to charge higher prices for its products while the demand remains the same.
2. Infrequency in purchases- It is less likely for a buyer to be sensitive to the price of a good that he buys infrequently, for example, salt.
3. No substitutes- If a good has no substitutes, then an increase in its price is associated with little fall in demand. For instance, if you rely on the use of a car, there is no alternative but to buy petrol to fill up the car.
4. Short-run - In the short-run, the demand for a product tends to be more price inelastic. This is because there is no time for consumers to look for alternatives.