Question

It is estimated that a 10% decline in income will reduce health care purchases by 5% and reduce dental service purchases by 16%. From this information, one can conclude that health care is a _______ and dental services are a ________..

Answer 1

A 10% decline in income resulting in a 5% decrease in health care purchases suggests that health care is a necessity. The same income drop causing a 16% reduction in demand for dental services indicates that dental services are a luxury.

Step-by-step explanation:

From the given information, we can infer that health care is a necessity and dental services are a luxury. This is because a necessity is a good or service for which demand changes little with variations in income, while a luxury item is one for which demand increases disproportionately as income rises.

The estimated 10% decline in income leads to a 5% reduction in health care purchases. This relatively smaller change in demand suggests that health care is a necessity, since people need to maintain basic health care consumption even when their income drops. On the other hand, a 10% decline in income results in a much larger 16% decrease in demand for dental services, indicating that dental services are a luxury as people tend to spend much less on these services when they have a lower income.