Question

When Sandy’s income doubled, his expenditure on live concerts increased by 250%. Expenditure on rentincreased by...

When Sandy’s income doubled, his expenditure on live concerts increased by 250%. Expenditure on rentincreased by 50%. Is live concert a luxury good for Sandy? What about housing?

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Answer #1

Here the income elasticity of demand for the concert would be more than one and that means the demand is elastic. For luxury goods the income elasticity of demand would be more elastic so for Sandy the live concert is a luxury. For the luxury goods the consumer's demand is more responsive to change in income. Here the elasticity is 1.25 and this shows the demand is more elastic.

IED= % Change in quantity demanded/% Change in income.

The housing for a individual is a necessity.

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