When incomes drop, what happens to the demand for an elastic product?

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BlackTom AI · Accepted Answer

First, restating the core idea: the question asks about how demand for an elastic product responds when incomes drop.
Option 1: 'It tends to decrease.' This aligns with economic intuition for a normal good with high income elasticity of demand; when incomes fall, quantity demanded of such goods tends to fall.
Option 2: 'It tends to increase slightly.' This would suggest that demand rises with lower incomes, which contradicts the typical behavior of elastic goods that rely on higher income for purchases; a decrease in income usually does not spur more demand for goods that are sensitive to price and income.
Option 3: 'It tends to increase significantly.' Similar to the previous, a substantial rise in demand due to income drop is unlikely for elastic goods, unless the product is a luxury substitute, but the premise here generally points to a decrease rather than an increase in demand when incomes fall.
Option 4: 'It remains unchanged.' This implies zero income effect on demand, which is inconsistent with the concept of price elasticity of demand and with standard income elasticity for elastic goods; changes in income typically alter demand.
In summary, the most reasonable option is that demand tends to decrease when incomes drop for an elastic product, since such goods respond noticeably to income changes and a drop in income reduces purchasing power.

When incomes drop, what happens to the demand for an elastic product?

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