Luxuries are distinguished from necessities by the
A) high cross elasticity of demand of the former and the low cross elasticity of the latter.
B) high income elasticity of the former and the low income elasticity of the latter.
C) fact that luxuries have high prices and necessities have low ones.
D) sign of the cross elasticity of demand.
E) number of substitutes available for each.

Question

Quizplus · Accepted Answer

Luxuries are goods or services that have a high income elasticity of demand, meaning that as income increases, the demand for these goods increases even more. Necessities, on the other hand, have a low income elasticity of demand, meaning that the demand for these goods does not increase as much with an increase in income. This distinction between luxuries and necessities is based on consumer behavior and preferences, rather than just the price or availability of substitutes.

Luxuries Are Distinguished from Necessities by the