Suppose the price elasticity of demand for Good A is 2.4 and the price elasticity of demand for Good B is 1.2. Which of the following statements is consistent with these values?
A) Good A is a luxury and Good B is a necessity.
B) Good A is a good several days after a price increase while Good B is that same good several years after the price increase.
C) Good A is ice cream and Good B is mint chocolate chip ice cream.
D) Good A is salt and Good B is college tuition.

Question

Quizplus · Accepted Answer

A higher price elasticity of demand indicates that the good is more sensitive to changes in price. Therefore, a price increase for Good A would result in a larger decrease in its demand than a price increase for Good B. Luxury goods typically have higher price elasticity of demand while necessities have lower price elasticity of demand, making it consistent with Good A being a luxury and Good B being a necessity.

Suppose the Price Elasticity of Demand for Good a Is