You are the owner of a construction company that specializes in new beach- front condominiums. If the income elasticity for your condominiums is 4.25, which of the following statements is true?
A)An upcoming economic recession will increase the demand for your condominiums.
B)The demand for your condominiums will not be affected by business cycles.
C)An upcoming economic expansion will increase the demand for your condominiums.
D)An upcoming economic expansion will decrease the demand for your condominiums.

Question

Quizplus · Accepted Answer

A high income elasticity of 4.25 suggests that your condominiums are a luxury good, and that as incomes increase, the demand for your condominiums will grow faster than the overall economy. Thus, an upcoming economic expansion that brings higher incomes will increase demand for your condominiums. Conversely, an economic recession with falling incomes would likely decrease demand for luxury goods, making choice A incorrect. Choice B can also be eliminated because demand is always affected by business cycles. Choice D is incorrect because an economic expansion with rising incomes will increase demand for luxury goods.

You Are the Owner of a Construction Company That Specializes