![]() For example, a consumer's housing budget might be at its maximum at half of their income. Consumer's income or budgetĪ product that costs a large portion of a consumer's budget can become prohibitively expensive with even a small price increase. The more unnecessary (luxurious) the product is, the more elastic the demand for it will be. Generally, the more necessary the product, the less elastic its demand due to the limited availability of reasonable substitutions. In times when a family needs to choose between medicine (necessity) and cookies (luxury), they're going to prioritize the medicine despite its price. A luxury, on the other hand, is nice to have, but not necessary. ![]() This product or service is considered a necessity. When something is necessary for everyday life, demand won’t change much regardless of price changes. Read more: 20 Examples of Substitute Goods Affected by Price Changes Necessities vs. There is no substitute for the fuel needed to transport us from one place to another, therefore, we'll always buy gas regardless of price. When there are few to no alternatives, demand will be much less elastic. If a substitute product is easy to find when a product's price rises, the demand will be more elastic. Inelastic demand is an economic situation in which consumer demand for a product does not change proportionately with a fall or rise in its price.įactors that make demand inelastic include: Substitutes ![]()
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