Inelastic Demand

After watching the Section 5.3 Review and Section 6.2 Review videos I have realized that gas price changes are inelastic. Inelastic demand is “when percent change in quantity demanded is less than percent change in price, so price elasticity is less than 1 in absolute value” (Hubbard & O’Brien, 2015b). This means that when a price of a product changes, such as gas, it does not affect the demand of that good or service. I feel that consumers will be responsive to the price change when these fluctuations occur due to changes in supply. Anyone who has driven would understand that whether gas prices are low or high it does not matter how much it costs because we need it, and there are few substitutes available. Yes, we could buy a more fuel-efficient car, move closer to work, take public transportation, or walk, but many people have to drive to continue their daily life activities. Since there are few alternatives and consumers need this, a necessity, consumers will buy it no matter what. This makes gas an inelastic demand. Gas is not elastic because an elastic good or service would be something that we have many substitutes for. For example, if
I went to a clothing store and did not like what they had, there are hundreds of other options, stores, which I could go to. Consumers will complain if prices go up and down, but we have to buy it anyways, so our only choice is to only drive where and when we absolutely have to when the prices are higher. If the prices are higher, I might have to give up one of my luxuries, such as a vacation or visiting relatives far away. My budget would have to be tight when prices are higher and more flexible when prices are lower. Negative externality is “ a cost that affects someone who is not directly involved in the production or consumption of a good or service” (Hubbard & O’Brien, 2015a).
This basically means when somebody other than the consumer or producer is faced with the negative affects. “When there is a negative externality, a tax can lead to economic efficiency” (Hubbard & O’Brien, 2015a). This statement is true because gas will always be in demand and no matter what the tax is people will pay for it. Some ways that this demand can be influenced is by making substitution like the ones stated above, moving closer to work, buying an electric car, or walking. Even though the demand may lower, people will always need gas. However, the amount the consumer uses in gas will still be taxed, which will lead to economic efficiency creating a
balance.