Final answer:
A good with elastic demand is a luxury item like a sports car, while insulin has inelastic demand due to its necessity. Gasoline may exhibit unitary elastic demand over the long term. Business owners must understand elasticity to make informed pricing and tax decisions.
Step-by-step explanation:
A good likely to have elastic demand is a luxury product like a sports car. This is because the demand for such a product is very sensitive to changes in price; as the price increases, the quantity demanded is likely to decrease significantly, and vice versa. On the contrary, a good with inelastic demand is a necessity, such as insulin for people with diabetes, because the quantity demanded does not change much with the price changes — people need it regardless of the price.
A good with unitary elastic demand could be gasoline over the long term. While in the short term it may appear inelastic, over the long term, people can adjust their consumption habits as prices change, such as by buying more fuel-efficient vehicles or using alternative modes of transportation, leading to a proportional responsiveness in demand.
Factors that can affect a good's level of elasticity include the availability of substitutes and the proportion of income spent on the good. The more substitutes there are, or the larger the portion of income spent, the more elastic the demand is likely to be. Business owners need to know the elasticity of demand for their goods or services because it affects their pricing strategies and potential revenue. Elasticity also determines how a tax is divided between buyers and sellers and the potential impact on the market equilibrium.