For a good that is a necessity,
a. quantity demanded tends to respond substantially to a change in price.
b. demand tends to be inelastic.
c. the law of demand does not apply.
d. All of the above are correct.
The correct answer and explanation is :
Correct Answer: b. demand tends to be inelastic.
Explanation:
A good that is considered a necessity—such as basic food items (e.g., bread, milk), housing, or essential medications—is something consumers need regardless of price fluctuations. Therefore, option (b) is the most accurate: demand for necessities tends to be inelastic.
Inelastic demand means that the quantity demanded changes very little when the price changes. This is expressed as a price elasticity of demand less than 1. For example, if the price of insulin rises, diabetics still need to purchase it despite the higher cost, because their health depends on it. That illustrates inelastic demand.
Let’s analyze why the other options are incorrect:
- Option (a): “Quantity demanded tends to respond substantially to a change in price.” This describes elastic demand, which applies to luxuries or non-essential goods, not necessities. People will cut back on these goods more easily if prices rise. So, this statement is not true for necessities.
- Option (c): “The law of demand does not apply.” The law of demand states that, all else being equal, as the price of a good increases, the quantity demanded decreases. This still holds for necessities, even if the demand is inelastic. People may buy slightly less or find substitutes, but they don’t stop buying altogether. The law of demand still applies—just with a weaker effect.
- Option (d): “All of the above are correct.” Since both (a) and (c) are incorrect for necessities, (d) must also be incorrect.
In conclusion, necessities have inelastic demand because people need them regardless of price. They don’t drastically reduce consumption even when prices rise, which contrasts with luxuries, where consumption drops significantly with price hikes.