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Using the data in Extract A, assess two reasons why income elasticity of demand for holidays may be income elastic - Edexcel - A-Level Business - Question 1 - 2019 - Paper 3
Question 1
Using the data in Extract A, assess two reasons why income elasticity of demand for holidays may be income elastic. Research by the Association of British Travel Ag... show full transcript
Worked Solution & Example Answer:Using the data in Extract A, assess two reasons why income elasticity of demand for holidays may be income elastic - Edexcel - A-Level Business - Question 1 - 2019 - Paper 3
Step 1
Reason 1: Nature of Holidays
Answer
One reason why the income elasticity of demand for holidays may be income elastic is that holidays are typically considered a luxury. As income increases, consumers are more likely to spend on luxurious all-inclusive holidays which cater to their desire for a stress-free, value-for-money experience. This leads to a proportionally larger increase in demand when income rises, indicating a positive income elasticity.
Step 2
Reason 2: Economic Uncertainties
Answer
Another reason is the impact of economic uncertainties. With the UK sterling exchange rate fluctuating, individuals may prioritize budget-friendly, all-inclusive options that allow for easier financial planning. This may make the demand more elastic as consumers become sensitive to changes in disposable income, especially if economic conditions lead to uncertainty about future income and spending.