Which of the following items is likely to have the highest income elasticity of demand?
A) A luxury cruise to several European countries
B) Water
C) Breakfast cereal
D) A hamburger

Question

Quizplus · Accepted Answer

Luxury items and services, like a luxury cruise, are likely to have higher income elasticity of demand because as people's incomes increase, they are more likely to spend money on such items. In contrast, necessities like water and food items like breakfast cereal and hamburgers are less likely to have high income elasticity of demand since people will continue to purchase them regardless of changes in their income.

Which of the Following Items Is Likely to Have the Highest