For which of the following goods is the income elasticity of demand likely lowest?

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BlackTom AI · Accepted Answer

The question asks: For which of the following goods is the income elasticity of demand likely lowest?

First, recall what income elasticity of demand (YED) measures: it is the responsiveness of the quantity demanded of a good to a change in consumer income. Goods with very low or zero YED are typically necessities, for which demand does not rise much as income increases.

In this scenario, the provided information indicates that the correct answer is labeled as 'b. Water', which aligns with the general economic intuition that water (a basic essential good) has among the lowest income elasticity values. Water is a basic necessity for survival, and even as incomes rise, consumption tends to remain relatively stable because people already allocate a core portion of income to essential hydration and health, leaving little room for large proportional increases.

However, the options that lead to the lowest YED are usually staple goods such as basic food items, housing, or utilities, which also tend to have very low elasticity compared to luxuries. In contrast, goods with high income elasticity include luxury items, vacations, brand-name electronics, and certain services, where demand grows more than proportionally with income as people can afford more discretionary spending.

If you consider typical categories:
- Necessities (basic food, water, basic housing) often have YED between 0 and 1, indicating less than proportional change in quantity with income.
- Luxuries (high-end electronics, travel, premium services) often have YED greater than 1, indicating a more than proportional change.
- Inferior goods can have negative YED, where demand falls as income rises, though this is less common for staples like water.

The key takeaway is that among common goods, a basic necessity such as water tends to exhibit the lowest income elasticity because its demand remains relatively stable regardless of income changes. Without the other options listed, we cannot compare each alternative directly, but the general principle supports water as a strong candidate for the lowest YED.

If you can provide the full list of answer options, I can walk through each one explicitly and show how their income elasticities typically compare to water.

For which of the following goods is the income elasticity of demand likely lowest?

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