For a good that is considered a luxury, the most accurate statement is a) demand tends to be inelastic. This means that changes in price do not significantly alter the quantity demanded. Luxuries are often seen as non-essential items, so even if their prices rise, those who can afford them are less likely to reduce their purchases significantly.
Let’s break it down further:
- Inelastic Demand: Luxury items often come with a higher price tag, and for consumers with significant disposable income, a price increase may not deter them from buying these goods. They perceive these items as worth the cost.
- Response to Price Changes: If the price of a luxury good rises, the quantity demanded does not drop greatly. This is in contrast to normal goods, where an increase in price may lead to a noticeable drop in quantity demanded.
- The Law of Demand: While the law of demand states that generally, as prices decrease, quantity demanded increases, luxury goods can sometimes behave differently. Affluent consumers may increase their consumption even if the price goes up, as they may view these goods as status symbols.
In summary, luxury goods exhibit inelastic demand due to their perceived value and the financial capability of their buyers, which results in less sensitivity to price changes.