Choose three goods. Then predict whether they have elastic or inelastic demand at their current price. Next, determine their elasticity by creating a demand schedule and curve for each one

Choosing three goods for this exercise, let's consider gasoline, insulin for diabetics, and smartphones.

1. Gasoline: Prediction: Gasoline typically has inelastic demand. Reason: Gasoline is a necessity for most people who rely on vehicles for transportation, and there are few immediate substitutes. People will buy it even when the price increases, although they might try to reduce consumption slightly if the price gets too high.

Demand Schedule & Curve: To create a demand schedule and curve, we would gather data on the quantity of gasoline demanded at various prices. If the demand does not change much with a significant change in price, the demand curve will be steep, reflecting its inelastic nature.

2. Insulin for diabetics: Prediction: Insulin has very inelastic demand. Reason: For people with diabetes, insulin is a life-saving drug with no close substitutes. Patients need it regardless of price.

Demand Schedule & Curve: Creating a demand schedule for insulin would show the quantity of insulin demanded at different prices. We would most likely see that the quantity demanded does not decrease significantly as the price increases. The demand curve would be very steep, showing that demand is insensitive to price changes.

3. Smartphones: Prediction: Smartphones have more elastic demand. Reason: Although smartphones are popular, consumers can delay upgrades or switch brands if prices rise. There are also many substitutes for smartphones, like older models or different electronics that provide similar functionalities.

Demand Schedule & Curve: To create a demand schedule for smartphones, we would look at how the quantity demanded changes with price. The curve will likely be less steep compared to gasoline or insulin, indicating a greater sensitivity to price changes and therefore more elastic demand.

Extra: Understanding Elasticity of Demand: Elasticity of demand measures how the quantity demanded of a good or service changes in response to a change in its price. If the quantity demanded changes significantly with a small change in price, the demand is said to be elastic. Conversely, if the quantity demanded doesn't change much even with large price swings, the demand is inelastic.

Factors affecting elasticity include the availability of substitutes, whether the good is a necessity or a luxury, the proportion of income spent on the good, and the time frame considered.

- Availability of Substitutes: If there are readily available substitutes for a good, the demand is likely to be more elastic as consumers can switch if the price of the good increases. - Necessities vs. Luxuries: Necessities tend to have inelastic demand because consumers need to purchase them regardless of price. Luxuries have more elastic demand as consumers can forgo these purchases if prices are too high. - Proportion of Income: If a good takes a large portion of one's income, the demand is likely to be elastic, because price increases have a significant financial impact. - Time Frame: In the short term, many goods have inelastic demand because consumers need time to adjust their behavior. In the longer term, demand for most goods becomes more elastic as consumers find alternatives or adjust their consumption habits.

To create a demand schedule and curve, data on how much of a good is purchased at various price points is plotted on a graph. The vertical axis typically represents price, and the horizontal axis represents quantity. The resulting curve shows the relationship between price and quantity demanded, illustrating the concept of elasticity.