Question

Goods like INSULIN are categorized as necessities, such that firms can raise prices and the quantity demanded will not change. Graphically illustrate this situation

Answer 1

Necessity goods are products and services that consumers will buy regardless of the changes in their income levels, therefore making these products less sensitive to income change. Examples include repetitive purchases of different durations such as haircuts, habits including tobacco, everday essentials such as electricity and water, and critical medicine such as insulin.

Since these goods are needed for everyday use and to live a healthy and normal life, so these goods are also price inelastic i.e. the quantity demanded of these goods doesn't change with change in price of goods. The goods like Insulin is needed to stay alive and hence whatever the price may be the consumer will buy the required quantity of it.

This cab be shown graphically as-

Since necessity goods are required by consumers always. So it can be seen from the figure that with increase in price of Insulin the quantity demanded for Insulin doesn't change and is same at price P, P1 and P2.