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When does a demand for a product tend to be price inelastic?

A - The product is considered a luxury item. B - Few good complements for the product are available. C - The population in the market area is large. D - Few good substitutes are available for the product.

Accounting Auditing Peachtree
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Question added by محمد الباجوري , Senior ERP Consultant & ERP Project Manager , XERVON GmbH
Date Posted: 2013/06/25
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Vinod Jetley
by Vinod Jetley , Assistant General Manager , State Bank of India

CORRECT ANSWER IS 'D".AS THERE ARE NO  good substitutes  available for the product.. ONE HAS TO BUY IT AT ANY PRICE. HENCE THE DEMAND IS PRICE INELASTIC. DEMAND WILL REMAIN THE SAME AT ANY PRICE.

Subhranshu Ganguly
by Subhranshu Ganguly , Quality Analyst. , WIPRO

The demand for an essential products like, salt,medicine tends to be inelastic. Change of price would have no effect on demand for the product.

Arun Philip
by Arun Philip , Analyst , IDC

Traditional response would be A - luxury item.
However, in the current market scenario even luxury brands are rethinking and revitalizing their pricing and branding policies opting to provide more 'bang for the high paying customers' buck'.
A perfectly inelastic demand could only arise from a commodity that has direct correlation to customer's burning need.
(E.g.
drugs for terminal patients, FMCGs in impoverished commodities, addicts and drugs etc.

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