A deep macroeconomic recession causes a significant fall in average consumer incomes. Over the same period, market research reveals that the demand for domestic holiday park bookings increases, while the demand for long-haul luxury flights falls.
Which of the following can be correctly concluded from this information?
Both services are normal goods because their demand is highly responsive to the change in consumer incomes.
Domestic holiday park bookings have a positive income elasticity of demand, whilst long-haul luxury flights have a negative income elasticity of demand.
Domestic holiday park bookings are classified as an inferior good, whilst long-haul luxury flights are classified as a normal good.
The cross-price elasticity of demand between the two services is negative because their demands moved in opposite directions.
256 exam-style questions on AQA A Level Economics 1.3 Price determination in a competitive market, covering 1.3.1 The determinants of the demand for goods and services, 1.3.2 Price, income and cross elasticities of demand, 1.3.3 The determinants of the supply of goods and services, 1.3.4 Price elasticity of supply, 1.3.5 The determination of equilibrium market prices, and 1.3.6 The interrelationship between markets. Each one has a worked solution and a mark scheme showing where the marks go.