Unit elastic
Highly elastic
Fairly elastic
Zero elastic
Answer is Right!
Answer is Wrong!
The correct answer is: B. Highly elastic
The demand for luxury items is highly elastic, meaning that a small change in price will lead to a large change in demand. This is because luxury items are not essential goods, and consumers are more likely to substitute them for other goods if the price increases. For example, if the price of a high-end sofa increases by 10%, consumers may be more likely to buy a lower-end sofa or even forgo buying a sofa altogether.
The other options are incorrect for the following reasons:
- Option A: Unit elastic demand means that the percentage change in demand is equal to the percentage change in price. This is not the case for luxury items, as the percentage change in demand is much greater than the percentage change in price.
- Option C: Fairly elastic demand means that the percentage change in demand is greater than the percentage change in price. This is true for luxury items, but the demand is even more elastic than this.
- Option D: Zero elastic demand means that the demand is not affected by changes in price. This is not the case for luxury items, as the demand is very sensitive to changes in price.