What does inelastic demand indicate?

Inelastic demand refers to a situation where the quantity demanded of a good or service is relatively insensitive to changes in its price. This means that when the price of the good changes, the demand does not change significantly. The correct answer highlights that the change in demand is less than the change in price.

In this context, if the price increases, consumers will still purchase the good or service, but they will not significantly decrease their quantity demanded. This characteristic is typical for essential goods or services, such as basic food items or fuel, where consumers will continue to buy nearly the same amount regardless of price fluctuations.

This understanding of inelastic demand is crucial for businesses and marketers, as it helps in pricing strategies and predicting consumer behavior. When demand is inelastic, businesses might raise prices, expecting that the total revenue will remain stable or even increase since the volume of sales will not drop dramatically.