IB International Economics Higher Level (HL) Practice Exam

A good's demand is likely to become more elastic when it takes up a large proportion of a consumer's income. This is because when a good represents a significant portion of a buyer's budget, even a small price change can lead to a noticeable change in the quantity demanded. Consumers are more sensitive to price increases or decreases for such goods, as these changes directly affect their purchasing power.

For instance, if the price of a luxury item or a major necessity like housing or cars increases significantly, consumers may reduce their quantities demanded or switch to alternative options, thereby showing elastic demand.

On the other hand, when a good has few substitutes or is considered a necessity, it tends to have inelastic demand. Consumers are less likely to reduce consumption in response to price changes because they have fewer alternatives and may need the good regardless of price fluctuations. The availability of the good year-round may contribute to demand stability, but it does not significantly influence the elasticity; instead, it is primarily the proportion of income that determines consumer sensitivity to price changes.