How is it possible that in some markets the income elasticity of demand for motorhomes is...

How is it possible that in some markets the income elasticity of demand for motorhomes is 3.5 and in other markets it is -1.25?

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Expert Solution

Motorhomes are mechanized coaches with living facilities are it is perceived differently in different market. Income elasticity of demand of 3.5 for the motorhomes, means that, with increase in the income, then demand for the motorhomes increase sharply. Since the elasticity is more than 1 then, it is perceived as a luxury good or the good that increases the status of individuals. In these markets, the traditional homes are cheaper and people want to buy motorhomes with the increase in income.
In some markets, the income elasticity of demand is -1.25 and it means that motorhomes are inferior good. In these markets, the traditional homes are expensive and people want to buy a traditional home when the income rises. So, for motorhomes, the income elasticity in negative.
So, it is the type of good perceived, the trends and preferences and the value perceived from the other products that affect the income elasticity of demand in different markets.

Rahul Sunny answered 1 year ago

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