Question

Assume that a family spends 35 percent of its income on housing, 20 percent on travel-related expenses, 10 percent on utilities, 25 percent on health care, and 5 percent on miscellaneous items. Demand for which category will be most responsive to a change in price? Group of answer choices travel-related expenses miscellaneous housing utilities health care

Answer 1

The correct answer is housing.

Step-by-step explanation:

A family spends 35 percent of its income on housing, 20 percent on travel-related expenses, 10 percent on utilities, 25 percent on health care, and 5 percent on miscellaneous items.

The item which has the largest share in the budget will be most responsive to change in the price. In other words, we can say that the item that has the largest share in the budget will be most price elastic.

This is because a change in the price of such a product will cause a significant impact on the consumer's budget.

Here, housing has the highest share i.e. 35% in the budget so it will be most price elastic.