What type of demand is characterized by a proportionately smaller change in quantity demanded following a price change?

Inelastic demand refers to a situation where the quantity demanded for a good or service changes by a smaller percentage than the percentage change in its price. This means that consumers are relatively insensitive to price changes for these goods, often because they are either necessities or have few substitutes available.

For example, if the price of a medication rises, individuals may still purchase it to maintain their health despite the increase, thus demonstrating inelastic characteristics. In contrast, elastic demand would show a significant change in quantity demanded when prices change, while unitary demand signifies a proportional change. Perfectly elastic demand means that any increase in price would lead to zero quantity demanded, highlighting extreme sensitivity to price fluctuations.

Understanding inelastic demand is crucial because it plays a vital role in pricing strategies and revenue generation for businesses, especially those dealing with essential goods.