It was always easy to understand why addictive products such as tobacco had inelastic demand, but less so for products like pencils and Ramen noodles. Our analysis has shown that goods which are inferior may have inelastic demands because the income and substitution effects work against one another rather than in the same direction as they do for normal goods. We also saw that it is possible for very inferior goods known as Giffen goods to have upward sloping demand curves.
One interesting insight is that, if the substitution effect for some good is strong then even if consumers are compensated for price changes, their behavior will change due to a price change.
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