Certified Supply Chain Professional (CSCP) Practice Exam

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When demand is inelastic, what is the effect of a price increase?

  1. Demand remains unchanged

  2. Demand decreases significantly

  3. Demand increases significantly

  4. Supply decreases

The correct answer is: Demand remains unchanged

When demand is inelastic, it means that consumers do not significantly change their quantity demanded in response to price changes. This occurs typically with essential goods or services for which there are few or no substitutes. When a price increase occurs in this context, consumers will still purchase nearly the same quantity of the good or service because their need for it overrides their sensitivity to the price change. Therefore, demand remains largely unchanged despite the price increase. Inelastic demand suggests that the percentage change in quantity demanded is less than the percentage change in price, resulting in a relatively stable demand level regardless of price fluctuations. This is crucial for businesses to understand, as it influences pricing strategies and revenue projections.

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