When incomes fall by 20 percent,quantity demanded of specialty baked goods falls by 50 percent.Specialty baked goods are
A) inferior goods.
B) necessities.
C) substitutes for mass-produced bread.
D) luxuries.
E) complements to butter.

Question

Quizplus · Accepted Answer

Luxuries are goods for which demand increases more than proportionally as income rises, and decreases disproportionately when income falls. The significant drop in quantity demanded (50%) due to a smaller decrease in income (20%) suggests that specialty baked goods are considered luxuries, as people cut back on them significantly when their income decreases.

When Incomes Fall by 20 Percent,quantity Demanded of Specialty Baked