Answer to Question #298801 in Microeconomics for kinemena

Question

 Air conditioners are a luxury good. a) What does this imply about income elasticity? b) Which two countries would you guess have the highest per capita demand for air conditioners at present? c) If people continue to get richer and global warming continues to increase, what is likely to happen to the quantity of air conditioners demanded? d) And what will this do to global warming? And hence to the demand for air conditioners

Answer 1

a) Income elasticity will be positive. This applies to all “normal” goods. There is no precise definition of a luxury, but one might expect the

income elasticity to be greater than +1.

(b) USA and Australia – rich countries with arid climates and hot summers.

(c) Other things being equal, demand will increase. However, the increased use of air conditioners will also increase global warming.

(d) Possibly, if market forces are left unchecked, eventually global warming would have adverse effects on income and living standards. Feeling poorer, people might then demand fewer air

conditioners, other things equal.