ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Giffen goods
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Normal goods
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Luxury goods
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Inferior goods
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Detailed explanation-1: -For example, luxury goods have a high price elasticity of demand because they are sensitive to price changes.
Detailed explanation-2: -Luxury goods are said to have high income elasticity of demand. In other words, as people become wealthier, they will buy more and more of the luxury good. Luxury goods are highly sensitive to economic upturns and downturns; therefore, the state of the economy will often shape consumer spending on luxury goods.
Detailed explanation-3: -The price elasticity for a luxury item is greater than one because when the price of the luxury item changes it will affect the quantity purchased by a huge amount. The luxury good can be replaced by cheaper substitutes if the price goes up, also luxury goods are not a necessity for the consumer.