The correct answer is C. Stereo equipment.
Income elasticity of demand is a measure of how much the demand for a good or service changes in response to a change in income. Goods with a high income elasticity of demand are called luxury goods, while goods with a low income elasticity of demand are called necessities.
Stereo equipment is a luxury good because it is a non-essential item that people are more likely to buy when they have more money to spend. When people’s incomes go up, they are more likely to spend money on luxury goods like stereo equipment. This is because they have more money to spare and they want to enjoy the finer things in life.
Rice, toothpaste, and newspapers are necessities because they are essential items that people need to buy regardless of their income. When people’s incomes go up, they are not likely to spend more money on these items. This is because they are already buying the amount of rice, toothpaste, and newspapers that they need.
In conclusion, stereo equipment is the good that would be expected to have the largest income elasticity of demand because it is a luxury good that people are more likely to buy when they have more money to spend.