Certified Financial Planner (CFP) Exam 2026 – 400 Free Practice Questions to Pass the Exam

When a product has inelastic demand, it means that consumers will continue to purchase nearly the same quantity of the product, regardless of price changes. Inelastic demand indicates that the percentage change in quantity demanded is less than the percentage change in price. Consequently, when the price of such a product increases, the total revenue generated from sales also increases.

This happens because the increase in price outweighs the minor decrease in quantity demanded. For example, if a medication has inelastic demand, even if its price rises, most consumers will still purchase it because they need it, thus leading to higher total revenue for the seller.

In contrast, with elastic demand, a price increase would lead to a significant drop in quantity demanded, subsequently reducing overall revenue. Therefore, understanding the nature of demand is crucial when determining how price changes will affect revenue.