Which of the following goods is likely to have the most price elastic demand?

• A. Luxury sports cars
• B. Table salt
• C. Tap water
• D. Insulin for diabetics

Answer: (A)

Verified step by step guidance

1. Understand the concept of price elasticity of demand, which measures how much the quantity demanded of a good responds to a change in its price. Goods with high price elasticity have quantity demanded that changes significantly when price changes, while goods with low price elasticity have quantity demanded that changes little with price changes.
2. Identify the characteristics that typically make demand more elastic: availability of close substitutes, whether the good is a luxury or a necessity, and the proportion of income spent on the good. Luxury goods tend to have more elastic demand because consumers can delay or avoid purchase, while necessities tend to have inelastic demand because consumers need them regardless of price.
3. Analyze each good in the list: Table salt and tap water are necessities with few substitutes and low cost, so their demand is generally inelastic. Insulin for diabetics is a life-saving necessity with no substitutes, so its demand is highly inelastic.
4. Consider luxury sports cars, which are not necessities, have many substitutes (other cars or no purchase), and represent a large expenditure. Therefore, their demand is more sensitive to price changes, making it more elastic.
5. Conclude that among the options, luxury sports cars are likely to have the most price elastic demand because they fit the criteria of a luxury good with available substitutes and a significant share of consumer income.