What are the influences that make the demand for a good, price inelastic?
Let’s review first. A good or service is price inelastic if, given a price change, consumers are not responsive in terms of quantity demanded. For example, the price elasticity of demand for cigarettes is 0.3. Cigarettes have inelastic price inelasticity. Why is this so? I will explain three factors. First, there are no close substitutes for the good. An addicted smoker will likely find gum, candy, or coffee unacceptable as a substitute. Second, the money spent on the good or service is a relatively unimportant part of the budget. The price of a cigarette in Canada is, on average, no more than 23 cents. It is 25 percent of the price of a chocolate bar and 10 percent of the price of a fancy coffee. A cigarette consumer will consider this purchase unimportant, just like coffee, matches, or salt. Third, because of an attachment to the good, the consumer will see this purchase as a necessary part of the budget. Other goods that have inelastic demand include beverages (all types), clothing,
