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Inelastic demand occurs when the quantity demanded of a good is relatively insensitive to changes in its price. This means that even if the price changes significantly, consumers will generally purchase about the same amount of the product. Why does this happen? Often, it’s because the good is a necessity, something essential that people cannot easily do without. An exemplary case is the demand for bread. When demand is inelastic:

• Price increases do not drastically reduce quantity demanded.
• Price decreases do not significantly boost quantity demanded.
• Consumers consider the good a necessity, or they have few alternatives.

Inelastic demand has important implications in government intervention. For example, if the government ramps up the production and supply of an inelastic good like bread, the market might not be greatly affected. The existing small businesses will continue to have their market share, as consumers will just consume the same amount, regardless of any price drop due to increased supply.

Elastic demand describes a scenario where the quantity demanded changes significantly in response to price changes. This sensitivity can often be seen with luxury goods, non-essential items, or products for which many substitutes exist. Looking at manicures, they are less of a necessity and more of a service that consumers treat themselves to, making their demand elastic. Key aspects of elastic demand include:

• A steeper drop in quantity demanded when prices rise.
• A significant increase in quantity demanded when prices fall.
• Many available substitutes, making switching easy for consumers.

If the government decides to increase the production of a service like manicures, prices would likely drop. Because of the elastic nature of the demand, this could severely affect small businesses. Consumers may switch effortlessly to more affordable government-provided services, significantly reducing small businesses' market share.

Government intervention can sometimes aim to stabilize markets, support consumers, or promote certain economic activities. However, its effect can vary drastically based on the elasticity of the product or service in question. When dealing with an inelastic good, like bread, government intervention by increasing production might not heavily disrupt the market. Consumers will purchase roughly the same amount regardless of price changes, meaning small businesses might not lose much ground. Conversely, with a product or service that has elastic demand, such as manicures, government intervention can lead to dramatic outcomes. A rise in supply could lead to a sharp drop in prices, and because consumers are sensitive to price changes, many may switch to the cheaper government option. This means the small businesses offering manicures may suffer considerably, as they are likely to lose a significant amount of their customer base.

Market share impact evaluates how a business or sector's portion of the market changes, especially pertinent when new players enter the scene or current players undergo significant changes, like a government stepping in to provide a service or good. With an elastic demand, a reduction in prices due to increased government production can lead to significant changes in market share. Small businesses may find themselves at a disadvantage, losing customers to a lower-priced government alternative. Their market share could plunge as they struggle to compete on price. In stark contrast, if the demand for a product or service is inelastic, like bread, the market share impact can be minimal. Customers will continue their purchasing patterns. Even with government intervention, small businesses might not notice a big dip in market share, as the increase in supply and any resultant price drop won't substantially alter consumer behavior.