Price inelasticity of demand has been described as “the buying and selling responses of consumers and producers to price changes” (McConnell and Brue, 2004). Price inelasticity will occur when a consumer is faced with purchasing an item for which one cannot go without or find a replacement for in the current economy. For example, gasoline may not be a negotiable option for those whom a vehicle is a necessity for transportation and livelihood. The consumer may live in a region where mass transit may not be an option or they must use a vehicle during the course of the work day for business travel. In this case the consumer is virtually at the mercy of the current price and may have to forgo other items in order to afford gasoline or other similar purchases. A consumer, who may have once enjoyed eating at a local restaurant two times a week, may have to limit visits to once per week or once per month in order to afford the increasing cost of gasoline. In this situation, paying for gasoline is inelastic to the consumer.
Income elasticity of demand is “the buying response of consumers when their income changes” (McConnell and Brue, 2004). If a consumer receives a pay increase or obtains a more lucrative job, this greatly increases the potential of that consumer to buy more expensive items. Conversely, if this same consumer loses a job or changes fields for a lower salary, the chances of purchasing those same more expensive items greatly decreases. For example, a consumer who once purchased a name brand clothing item when earning $40, 000 a year, may need to switch to cheaper brands if they were to have a job paying $30,000 a year. This same consumer may need to forgo purchasing clothing altogether when comparing current income with the cost of ess ...