Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It increases demand for luxury goods.
B
It decreases demand for luxury goods.
C
It has no effect on demand for luxury goods.
D
It makes luxury goods a necessity.
Understanding the Answer
Let's break down why this is correct
Answer
When consumers get more income, they have more money to spend on items that are not essential, such as designer clothes, high‑end electronics, or luxury cars. Because luxury goods are “normal” goods with income elasticity greater than one, a rise in income makes people want a larger share of their spending on them. This extra willingness to buy pushes the market demand curve for luxury goods to the right, meaning each price level now sees a higher quantity demanded. For example, if a family’s income rises from $50,000 to $70,000, they may decide to upgrade from a regular sedan to a premium model, increasing the overall demand for luxury cars. Thus, higher consumer income typically boosts the market demand for luxury goods.
Detailed Explanation
When people earn more, they have extra money to spend on items they want but don't need. Other options are incorrect because Some think extra money is saved for basic needs, so luxury purchases drop; The idea that income changes nothing is a misconception.
Key Concepts
Market Demand and Supply
Topic
Specialization and Trade
Difficulty
easy level question
Cognitive Level
understand
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Question 3If consumers experience an increase in income, leading to a rise in their purchasing power, which of the following scenarios best describes the impact on the demand curve for a normal good?
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Question 4How does an increase in consumer income typically affect the demand curve for normal goods, and what is the underlying reason for this shift?
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Question 5How does a decrease in consumer income typically affect the demand for inferior goods?
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Question 6If a sudden increase in consumer income leads to a higher quantity demanded for luxury goods, what is the underlying cause of this change in market equilibrium?
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Question 8How does a price elasticity of demand greater than 1 affect consumer behavior when prices increase?
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