Which of the following goods (with their respective income elasticity coefficients in parentheses) will most likely suffer a decline in demand during a recession?
A) dinner at a nice restaurant (+1.8)
B) chicken purchased at the grocery store for preparation at home (+0.25)
C) second-hand clothing (-0.6)
D) plasma screen and LCD TVs (+4.2)

Question

Quizplus · Accepted Answer

Goods with income elasticities greater than 1 are considered luxury or non-necessary goods. Plasma screen and LCD TVs have an income elasticity of +4.2, indicating that they are highly sensitive to changes in income. During a recession, consumers are likely to cut back on luxury or non-necessary goods, which means there will be a decline in demand for plasma screen and LCD TVs.

Which of the Following Goods (With Their Respective Income Elasticity