Why Toilet Paper’s Inelasticity Makes It a Recession-Proof Investment
What To Know
- Elasticity measures the percentage change in quantity demanded or supplied in response to a percentage change in price.
- An elastic product is one where a small change in price leads to a significant change in demand or supply.
- If the price of toilet paper goes up, consumers will likely continue to buy it because it is a necessity.
When it comes to household essentials, toilet paper reigns supreme. But what happens when the supply chain is disrupted or prices spike? The answer lies in the concept of elasticity, which measures how responsive consumers are to price changes. In the case of toilet paper, the answer is clear: it is inelastic.
What is Elasticity?
Elasticity measures the percentage change in quantity demanded or supplied in response to a percentage change in price. An elastic product is one where a small change in price leads to a significant change in demand or supply. Conversely, an inelastic product is one where a change in price has little effect on demand or supply.
Why is Toilet Paper Inelastic?
Toilet paper is an inelastic product for several reasons:
- Necessity: Toilet paper is a basic necessity that people cannot do without. Even if the price increases, people will still need to buy it.
- Low Price: Toilet paper is relatively inexpensive, so price changes have a minimal impact on consumers’ budgets.
- Habitual Use: Toilet paper is a product that people use regularly, and they often do not notice or care about price fluctuations.
- Lack of Substitutes: There are few substitutes for toilet paper, so consumers have no other options if the price increases.
Implications of Toilet Paper Inelasticity
The inelasticity of toilet paper has several implications for consumers and businesses:
- High Prices: Because toilet paper is inelastic, businesses can charge relatively high prices without losing significant sales.
- Limited Supply: During periods of high demand, the inelasticity of toilet paper can lead to shortages and hoarding.
- Stable Sales: Toilet paper manufacturers and retailers can rely on consistent sales even during economic downturns.
Demand and Supply Curves for Toilet Paper
The inelasticity of toilet paper is reflected in its demand and supply curves. The demand curve for toilet paper is relatively flat, indicating that price increases have little impact on demand. The supply curve is also relatively flat, indicating that suppliers can increase production without significantly lowering prices.
Elasticity and Other Products
Toilet paper is not the only product that is inelastic. Other examples include:
- Salt
- Gasoline
- Cigarettes
- Prescription drugs
Takeaways: The Unbreakable Bond
Toilet paper is an inelastic product, meaning that price changes have little impact on demand. This inelasticity is due to its necessity, low price, habitual use, and lack of substitutes. As a result, toilet paper manufacturers and retailers can charge relatively high prices and rely on consistent sales even during economic downturns.
Top Questions Asked
Q: Why is toilet paper so expensive?
A: Toilet paper is relatively inexpensive compared to other household essentials. However, the inelasticity of toilet paper allows manufacturers and retailers to charge higher prices without losing significant sales.
Q: What happens if the price of toilet paper goes up?
A: If the price of toilet paper goes up, consumers will likely continue to buy it because it is a necessity. However, they may reduce their consumption or switch to a cheaper brand.
Q: Are there any substitutes for toilet paper?
A: There are few substitutes for toilet paper, which is why it is so inelastic. However, some people may use tissues, paper towels, or even leaves in an emergency.
