With regard to price elasticity, in general, demand for a luxury good is likely to be ........
- Inelastic
- Unitary elastic
- Perfectly Inelastic
- Elastic
With regard to price elasticity, in general, demand for a luxury good is likely to be ........
- Inelastic
- Unitary elastic
- Perfectly Inelastic
- Elastic
Solution
Option 1 -> Inelastic demand means quantity demanded changes less than proportionally to price changes, typical for necessities.
Option 2 -> Unitary elastic means percentage change in quantity demanded equals percentage change in price.
Option 3 -> Perfectly inelastic means quantity demanded remains constant regardless of price changes, extremely rare.
Option 4 -> Elastic demand means quantity demanded changes more than proportionally to price changes, typical for non-essential goods.
Hence, Elastic -> Luxury goods are non-essential items that consumers can easily postpone or substitute when prices rise. Since they are not necessities, consumers are highly responsive to price changes. When prices increase, demand falls significantly; when prices decrease, demand rises substantially. This makes the price elasticity of demand greater than 1, which is classified as elastic demand. Examples include designer clothing, expensive jewelry, and high-end electronics. -> correct
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