When an item costs more but you still need it? That’s “inelastic demand.”
When an item costs more but you still need it? That’s “inelastic demand.”
One eye-grabbing number from January’s consumer price index: The price of baby food and formula was up 8.7% from the same time last year — which is nearly three times overall inflation.
That’s especially painful because baby food and formula aren’t necessarily things you can just do without. Economists call this inelastic demand.
“Inelastic demand” means regardless of how the price of something changes, consumers basically buy the same amount, said Steven Blitz, chief U.S. economist for GlobalData TS Lombard.
He cited goods with inelastic demand. One is gasoline, he said. “You commute, you drive, you take your kids to school and your demand for that is inelastic to the price,” he said.
Other things with inelastic demand include food, medicine and even coffee.
If the prices of those things go up? “People just suffer,” said Tal Gross, a professor of managerial economics at Boston University.
When people have to spend more on gas, for instance, they might spend less on going out to dinner. But beyond that?
“Maybe you’ll drive a little bit less. Maybe you’ll switch to the cheaper gasoline. But there’s not much you can do in the short run,” he said.
In the long run, people can change — maybe by taking public transit to avoid buying so much fuel. Paying elevated prices for must-have products can influence consumers’ perception of the overall economy, said Veronique de Rugy, a senior research fellow at George Mason University’s Mercatus Center.
“The economy’s doing well,” she said. “But for the stuff that you absolutely need to buy, a lot of those prices are still up. I mean, I think this is why people are frustrated,” she said.
Because, in the short term, she said, there’s nothing they can do.
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