Final answer:
The correct answer is b) Elastic; inelastic, where more expensive purchases are initially elastic but become inelastic when they are urgent necessities. Factors influencing demand elasticity include necessity, income, and price levels.
Step-by-step explanation:
When a purchase requires more of a person's income, it tends to be inelastic. However, if the costly purchase is for a product or service a person needs urgently, the demand becomes more inelastic. Therefore, the correct answer is b) Elastic; inelastic.
Necessity plays a significant role in determining the elasticity of demand. If a product is deemed a necessity, the demand will be inelastic. Conversely, items not considered necessities will likely have more elastic demand. Furthermore, income also affects the elasticity of demand. Higher-income consumers experience less elastic demand for goods, as price increases do not significantly impact their purchasing decisions, while those with lower incomes are more sensitive to price changes.
Lastly, the level of price affects the elasticity of demand. Higher-priced goods tend to have more elastic demand compared to inexpensive goods. This concept is further explained by the income elasticity of demand, which is usually positive, meaning an increase in income leads to an increase in quantity demanded for normal goods. However, for certain goods known as inferior goods, an increase in income leads to a decrease in demand.