ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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income elasticity of demand is greater
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income elasticity of demand is lower
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Either A or B
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None of the above
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Detailed explanation-1: -Necessities and medical treatments tend to be relatively inelastic because they are needed for survival, whereas luxury goods, such as cruises and sports cars, tend to be relatively elastic.
Detailed explanation-2: -Elasticity of demand for sports cars can be considered as elastic. Besides sports cars, there is many cheaper cars that can be bought by consumers. This cars are very expensive, so they take a large proportion in consumer’s income.
Detailed explanation-3: -Question: A researcher has estimated that the price elasticity of demand for automobiles in the United States is-1, 2, while the income elasticity of demand is 3.0. Next year US automakers intend to increase the average price of cars by 5 percent, and they expect consumer income to rise by 3 percent.
Detailed explanation-4: -Luxury goods represent normal goods associated with income elasticities of demand greater than one.