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Luxury goods with many substitutes, such as Caribbean cruises and sports vehicles, as likely to have highly elastic demand curves. What else does it say makes a good likely to have elastic demand?
AThe good's price stays fixed forever
BThe good takes a large share of a buyer's income
CThe good has no close substitutes available
DThe good is a necessity people must keep buying
Answer & Solution
Correct answer: B. The good takes a large share of a buyer's income
1. Three traits linked to highly elastic demand: being a luxury, taking a large share of a buyer's income, and having many substitutes.
2. A good that eats up a large part of income makes buyers price-sensitive, pushing demand toward elastic.
3. Having no close substitutes is the opposite condition, associated with inelastic demand for necessities like gasoline.
4. A necessity people must keep buying regardless of price is also associated with inelastic, not elastic, demand.
_Source: OpenStax Principles of Microeconomics for AP Courses (CC BY 4.0), Ch 5 "Elasticity", section 5.2 | Polar Cases of Elasticity and Constant Elasticity_
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