For which of the following goods is the income elasticity of demand likely highest? a. tennis...

For which of the following goods is the income elasticity of demand likely highest?

a.

tennis lessons

b.

allergy medication

c.

clothing

d.

cell phone contracts

Expert Solution

Income elasticity is the % change in quantity demanded with the % change in income of consumers. It would the highest in case of luxury good.

Allergy medication would be inelastic because it is something which would be less concerned with income or the demand . if a person is in need of healthcare , it would be less likely to change due to chnage with income.

Clothing Is a necessary good. People would tend to buy it more when income increases , but it wont have the highest elasticity because it is not a luxury good.

Cell phone contracts are the monthly or yearly rental paid for mobile usage . Again it wont drastically change when income would increase or decrease. People would tend to change the plans of their rental , but the change would not be a major one .

Tennis lessons would be a luxury good because individuals having a high income would be enrolling in it. It is not a necessary good and would have the highest income elasticity when income changes. When income would reduce, an individual would probably not reduce the consumption of rest of them as much as he reduces of the tennis lessons.
So answer is option A) Tennis lessons.

(You can comment for doubts )

Rahul Sunny answered 2 years ago

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