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Reasons for Price-Inelastic Demand

Question

Explain two reasons why demand for a product may be price-inelastic.

Category:

Elasticity

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Preview Answer

I. 🍃Introduction
- Explanation of the importance of understanding factors that affect consumer behavior in relation to pricing

II. Factors that make a product price inelastic
A. Lack of substitutes
- Explanation of how consumers cannot switch to rival products
- Example of a product with no substitutes

B. Necessity
- Explanation of how people will need to buy the product even if the price rises
- Example of a necessary product

C. Small proportion of income
- Explanation of how people may not notice a price rise
- Example of a product that takes up a small proportion of income

D. Addictive
- Explanation of how people cannot do without the product
- Example of an addictive product

E. Time constraint
- Explanation of how people do not have time to find alternatives
- Example of a product that cannot be postponed

F. Advertising
- Explanation of how advertising can change consumer tastes and make a product a "must-have"
- Example of a product that has been made a "must-have" through advertising

III. 👉Conclusion
- Summary of the factors that make a product price inelastic
- Importance of understanding these factors for businesses and consumers alike.

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