Studies Show That the Income Elasticity of Demand for Wine

question 212

Multiple Choice

Studies show that the income elasticity of demand for wine is 5.03 and the income elasticity of demand for spirits is 1.21.This indicates that

• A)wine and spirits are luxury goods.
• B)wine is a luxury good and spirits are inferior goods.
• C)wine and spirits are highly price elastic.
• D)wine is a luxury good and spirits are necessities.

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Definitions:

Quantity

The quantity of a material or abstract item that is typically not measured in spatial terms.

Substitutes

Goods or services that can be used in place of one another, where the consumption of one increases when the price of the other increases.

Pork

Refers to the meat derived from domestic pigs, used for culinary purposes.

Inferior Goods

Goods for which demand decreases as the income of the consumer increases, being replaced by more expensive alternatives.