The Economic Way of Thinking 13th Edition by David Prychitko, Peter Boettke, Paul Heyne

Exercise 20

Some people have suggested that we can distinguish between luxuries and necessities in the following way: Luxuries are goods for which the demand is very elastic, and necessities are goods for which the demand is very inelastic. Do you agree that relative elasticity of demand provides an effective criterion for distinguishing luxuries from necessities? Think of some specific items that most people would classify as luxuries and some that most people would classify as necessities, and then ask yourself whether the demand curves would generally be elastic or inelastic in each case.