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Question : Statement 1: If a good is a luxury, its demand is generally elastic.

Statement 2: Luxury goods tend to have more substitutes, making consumers more responsive to changes in price.

Option 1: Both statements are true.

Option 2: Both statements are false.

Option 3: Statement 1 is true, and statement 2 is false.

Option 4: Statement 1 is false, and statement 2 is true.


Team Careers360 12th Jan, 2024
Answer (1)
Team Careers360 15th Jan, 2024

Correct Answer: Both statements are true.


Solution : The correct answer is (A) Both statements are true.

Statement 1: If a good is a luxury, its demand is generally elastic. This statement is true. Luxury goods are often associated with higher income levels and are considered non-essential or discretionary purchases. As a result, consumers are more sensitive to changes in the price of luxury goods, and the demand for luxury goods tends to be more elastic.

Statement 2: Luxury goods tend to have more substitutes, making consumers more responsive to changes in price. This statement is also true. Luxury goods often have a variety of substitute products available in the market. When the price of a luxury good increases, consumers have more options to switch to alternative products, which increases their responsiveness to price changes. This higher availability of substitutes contributes to a more elastic demand for luxury goods.

Both statements accurately describe the relationship between luxury goods, price responsiveness, and elasticity of demand.

 

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