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

When demand for a product is inelastic, it signifies that consumers are relatively unresponsive to changes in price. This means that even if the price of the product increases, the quantity demanded will not decrease significantly; instead, consumers will continue to purchase the product at similar quantities.

As a result, when the price increases for a product with inelastic demand, total spending—which is calculated as price multiplied by quantity—will increase. This is because although the price rises, the decrease in quantity demanded is not substantial enough to outpace the price increase. Therefore, consumers end up spending more overall, since they continue to buy the product despite the higher prices.

This concept is crucial in economic theory, particularly in understanding consumer behavior and pricing strategies. Inelastic demand typically occurs for essential goods or products for which there are few substitutes, as consumers require these goods regardless of price changes, leading to the observed increase in total spending when prices rise.