Necessities

Definition

Necessities are goods or services that are essential for an individual's or household's basic survival and well-being. These are the most fundamental items required to maintain a minimum standard of living, such as food, water, shelter, and clothing.

5 Must Know Facts For Your Next Test

1. Necessities are typically characterized by inelastic demand, meaning that the quantity demanded changes little in response to price changes.
2. The demand for necessities is often less sensitive to changes in income compared to luxury goods, as individuals must purchase them regardless of their financial situation.
3. The price elasticity of demand for necessities is generally low, as consumers have limited substitutes and cannot easily forgo the purchase of these essential items.
4. Necessities are often the focus of government intervention, such as price controls or subsidies, to ensure their affordability and accessibility for all members of society.
5. The distinction between necessities and luxuries can vary across different cultures and economic contexts, as the definition of basic needs may differ based on societal norms and standards of living.

Review Questions

• Explain how the concept of necessities relates to the price elasticity of demand.
  • The demand for necessities is typically inelastic, meaning that the quantity demanded changes relatively little in response to changes in price. This is because consumers have limited substitutes for necessities and must continue to purchase them regardless of price fluctuations, as they are essential for survival and basic functioning. The low price elasticity of demand for necessities is a key characteristic that distinguishes them from luxury goods, which tend to have more elastic demand.
• Describe the relationship between necessities and the concept of polar cases of elasticity.
  • Necessities represent one of the polar cases of elasticity, specifically the case of perfectly inelastic demand. In this scenario, the quantity demanded for a necessity remains constant regardless of changes in price, as consumers have no choice but to purchase the good. This is in contrast to the other polar case, perfectly elastic demand, where even the slightest change in price would result in a complete shift in the quantity demanded. Understanding the relationship between necessities and these polar cases of elasticity is crucial for analyzing consumer behavior and the impact of price changes on the demand for essential goods.
• Evaluate how the distinction between necessities and luxuries can influence the concept of constant elasticity.
  • The distinction between necessities and luxuries can have a significant impact on the concept of constant elasticity. For necessities, the demand is typically inelastic, meaning that the price elasticity of demand remains relatively constant and low, regardless of the price level. In contrast, the demand for luxuries is often more elastic, with the price elasticity of demand varying more as prices change. This difference in elasticity patterns between necessities and luxuries is an important consideration when analyzing the concept of constant elasticity and its application in economic decision-making and policy formulation.

Related terms

Luxuries:

Luxuries are goods or services that are not essential for survival or basic functioning, but rather provide additional comfort, pleasure, or status beyond the necessities.

Inelastic Demand:

Inelastic demand refers to a situation where the quantity demanded of a good changes relatively little in response to a change in its price, often the case for necessities.

Inferior Goods:

Inferior goods are those for which demand decreases as income increases, in contrast to normal goods, which are considered necessities.