It is estimated that a 5 percent decline in income will reduce health care purchases by 2.5 percent and reduce dental service purchases by 8 percent. From this information, one can conclude that:
A) health care is a necessity and dental services are a luxury.
B) health care is a luxury and dental services are necessities.
C) both health care and dental services are necessities.
D) both health care and dental services are luxuries.

Question

Quizplus · Accepted Answer

A necessity is a good for which demand is less sensitive to changes in income, while a luxury is more sensitive. Since health care purchases decline by only 2.5% with a 5% income decline, it is less sensitive and thus a necessity. Dental services decline by 8%, showing higher sensitivity, indicating they are a luxury.

It Is Estimated That a 5 Percent Decline in Income