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Using the data in Extract A, assess two reasons why income elasticity of demand for holidays may be income elastic - Edexcel - A-Level Business - Question 2 - 2019 - Paper 3
Question 2
Using the data in Extract A, assess two reasons why income elasticity of demand for holidays may be income elastic. Holidays are considered a luxury, which means an... show full transcript
Worked Solution & Example Answer:Using the data in Extract A, assess two reasons why income elasticity of demand for holidays may be income elastic - Edexcel - A-Level Business - Question 2 - 2019 - Paper 3
Step 1
Reason 1: Luxury Nature of Holidays
Answer
Holidays are categorized as luxury goods, meaning that as consumers' income increases, their demand for holidays increases even more significantly. This scenario demonstrates a high-income elasticity of demand (YED), indicating that consumers are likely to spend more on all-inclusive holidays when they can afford it.
Step 2
Reason 2: Economic Uncertainty and Preferences
Answer
During periods of economic uncertainty, consumers may opt for more affordable vacation options, such as staycations, instead of all-inclusive holidays. This shift reflects how changes in income levels can affect holiday choices, further illustrating the income elasticity of demand, as people become more sensitive to their available resources.