What is Inelastic Demand (0 < PED < 1) | UPSC Economy Notes

 Inelastic Demand (0 < PED < 1):

✅ Definition:

• "Inelastic demand" means people do not reduce their buying by much even if the price increases.

• It happens for essential goods — like curd, salt, petrol, etc.

• PED (Price Elasticity of Demand) measures how much quantity changes when the price changes.

  • If PED is between 0 and 1, demand is inelastic.

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✅ What happens:

• Price goes up ➜ Quantity demanded goes down slightly.

• But because people still buy almost the same amount, the total revenue increases.

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Example: Petrol Price Increase

📌 Situation:

• Price of petrol increases from ₹100 to ₹110 (10% increase).

• Quantity demanded decreases from 5000 litres to 4850 litres (3% decrease).

✅ Let's calculate PED:

$$\text{PED} = \frac{\%\ \text{Change in Quantity}}{\%\ \text{Change in Price}} = \frac{3\%}{10\%} = 0.3$$

🟩 Since 0 < PED < 1, this is inelastic demand.

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💰 Total Revenue:

• Before price rise: ₹100 × 5000 litres = ₹5,00,000

• After price rise: ₹110 × 4850 litres = ₹5,33,500

✅ Revenue increased even though fewer litres were sold.

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🧠 Why is petrol inelastic?

Because people need it daily for commuting, transportation, and business, so they can’t easily reduce usage, even if the price goes up.

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💡 Key Points to Remember:

Concept	Value
PED Range	0 < PED < 1
Quantity Response	Less than price change
Total Revenue	Increases if price increases
Goods Type	Necessities (like milk, curd, petrol)
Example PED	0.5 (means weak reaction to price)