The income elasticity of demand for foreign travel
A) is likely to be smaller than the income elasticity of demand for food.
B) is likely to be larger than the income elasticity of demand for food.
C) cannot be compared to the income elasticity of demand for food.
D) is likely to be inelastic.
E) is likely to be negative.

Question

Quizplus · Accepted Answer

Foreign travel is typically considered a luxury good, for which the income elasticity of demand is higher than for necessities such as food. Therefore, it is likely that the income elasticity of demand for foreign travel is larger than that of food. Choice A is incorrect because the income elasticity of demand for food is generally quite low, as it is a staple good for which demand does not vary greatly with income changes. Choice C is incorrect because the income elasticity of demand for foreign travel can be compared to that of food or any other good. Choice D is unlikely because foreign travel is a discretionary expense, and discretionary expenses tend to have higher income elasticity of demand. Choice E is impossible, as negative income elasticity of demand would imply that demand for foreign travel decreases as income increases, which is a highly unlikely scenario.

The Income Elasticity of Demand for Foreign Travel