Final answer:
Inelastic demand means a good's purchase quantity barely changes with price variations, often because the good has no close substitutes and is a necessity, such as life-saving drugs and gasoline. Luxury items, on the contrary, tend to have elastic demand. A good being highly price elastic would not explain inelastic demand.
Step-by-step explanation:
When it comes to determining whether the demand for a good is inelastic, various factors come into play. Inelastic demand means that consumers' purchase quantities do not change significantly when the price of the good changes. One key reason for this could be that the good has no close substitutes. If consumers do not have alternative products to switch to, they are less likely to reduce consumption in response to price increases. In the case of necessities, such as life-saving drugs and gasoline, demand tends to be highly inelastic because these products are essential and cannot easily be foregone or replaced. On the other hand, a luxury item is more prone to have elastic demand since it is not a necessity, and consumers can choose whether to purchase it based on price changes. Lastly, a good that is highly price elastic would have a significant change in the quantity demanded with price fluctuations, which is the opposite of inelastic demand.