If a product's price increases by 75% and volume sold drops only by 15%, is it fair to assume it's fairly inelastic to changes in price? What is an acceptable range (for us to say the product's volume sold is sensitive to price? (eg if volume decreases by 25%? or 50%?)
Yes, it's inelastic. Sometimes it helps to think of inelastic examples (e.g. cigarettes) to root the problem.
In your case, if price goes up 75%, any volume decrease under ~40% I'd say is inelastic. But its a grey area.
If you get something thats grey (e.g. price up 75% and volume down 50%) the case interviewer is not going to fail you for saying its inelastic if they don't think it is. Speak like a person: the product looks a bit inelastic, but the effect is not too strong.
That's absolutely right!
“Perfect” price inelasticity is where any very small change in price results in a very large change in the quantity demanded
“Unit” elasticity is when a 1% change in price results in a 1% change in volume. As in, there's no difference
“Pefect” price elasticity is where the quantity demanded does not change when the price changes
Remember, technically these curves aren't “straight” or flat in the real world. Rather, something can be inelastic at one price point, and move to being elastic at another (as you reach the tail end of a given curve). However, for the purposes of casing, we normally assume elasticity to be linear/uniform.
You can say that a product is inelastic if you change its price and find as a result that the percentage change in quantity sold is less than the percentage change in price.
Conversely, when you change the price of an elastic product, the percentage change in quantity sold is greater than the percentage change in price.
So in your example of a 75% price increase, a product is elastic to changes in price if the quantity sold decreases by more than 75%. If it decreases by less than 75%, it is price inelastic (so your examples of volume decreases of 25% and 50% would fall into this category too).
There's no general meaningful definition of what is “fairly elastic”, “somewhat elastic” etc. (expect perfectly elastic, perfectly inelastic, and unit elastic), it is generally determined through comparison with other products in the relevant market. E.g. You find that firm A's cars have lower price elasticity than firm B's cars, which are similar, because firm A has more brand recognition → firm A can set a higher price and still generate high profits.
In real life elasticity can vary for a product depending on how high you are pricing it, but in cases you can probably make some simplifying assumptions, as Ian mentioned.
You are correct, it is inelastic.
1) Inelastic: If % change in demand is less than % change in price, the product is considered inelastic. If demand doesn't change at all when price changes, the product is perfectly inelastic
2) Elastic: If % change in demand is greater than % change in price, the product is considered elastic. If any increase in price leads to fall in demand to zero, and if any decrease in price leads to infinite increase in demand, the product is perfectly elastic
3) Unit elastic: If % change in demand is equal to % change in price, the product is unit elastic
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