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Is water example of pefectly inelastic demand?
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Is water example of pefectly inelastic demand?
Serval people have answered here that the demand for water is perfectly inelastic, on the grounds that it is indispensable for life—human and otherwise. Yet, demand of water is undoubtedly price sensitive, hence elastic: If the water from your tap is potable and cheap (as it is in most developed nations), the demand for it will be huge as people take long showers, wash their car, water their lawns and gardens, etc. As the price increases they start using water more judiciously, thus consuming less.
Others have argued that perfectly inelastic demand is a purely theoretical concept with no real-life equivalent. They tend to say this disparagingly, as though a theoretical concept cannot provide insights. “Perfect vacuum” is a theoretical concept that helps physicists analyse and describe physical processes, yet it does not occur in the real world. So while an example of perfectly inelastic demand may not exists, nearly perfectly inelastic demand may well, and it helps trying to understand when and why this may occur.
The key aspect of elastic demand is the ability of consumers to either do without or to substitute away from the product. Demand becomes (nearly) perfectly inelastic when neither of these two alternatives are available. Demand will therefore be quite inelastic in the following circumstances:
If the price of the product is (currently) so low that the consumer barely notices it and hence does not change her behaviour when (small) price increases occur. Chewing gum may be an example.
If the product is essential to the consumer’s current way of life. The examples of gasoline or electricity are good ones in this regard. Demand for gasoline is quite inelastic given where people live and work, the transportation options they currently have, and the cars (a durable good) they own. So in the short run gasoline demand is quite inelastic. But if gasoline prices are expected to be significantly higher (or lower) in the long run, people will make different choices regarding where they live, what type of cars they buy, or what kind of public infrastructure will be provided. Same for electricity.
If the decision maker does not coincide with the payer. E.g, medical treatment is often decided either by the doctor or by the patient following the doctor’s advice. The doctor is not paying the bill, and often neither is the patient. This means that the purchasing decision rarely takes the cost (price) of the treatment into account, making it nearly price inelastic. Health insurance companies and government health services establish rules and processes trying to reign in excessive price increases and “overconsumption” (unneeded treatments), but clearly with limited success.
If there is no substitute available. Suppose you have a heart condition and there is one and only one drug available for treatment, your demand is for all practical purposes inelastic. Notice that in this case the reason is different from the previous bullet point, even though both apply to the demand for health care services or products.
I hope this shows that even though perfectly inelastic demand may just be a theoretical concepts, we learn quite a bit from it about what conditions may make demand more, and in some cases nearly perfectly, inelastic.
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Is water example of pefectly inelastic demand?
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Is water example of pefectly inelastic demand? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about Is water example of pefectly inelastic demand? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Is water example of pefectly inelastic demand?.
Is water example of pefectly inelastic demand? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about Is water example of pefectly inelastic demand? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Is water example of pefectly inelastic demand?.
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