Suppose you learn that in 1,900, households spent about 40 percent of their budget on food, and today, they spend about 10 percent of their budget of food. All else equal, this suggests that the price elasticity of demand for food:
A)is probably negative.
B)has always been very high.
C)is probably lower now than it was in 1,900.
D)is probably higher now than it was in 1,900.

Question

Quizplus · Accepted Answer

All else equal, the higher the share of your budget you spend on a good, the higher will be the price elasticity of demand for that good. Since households spend a much smaller fraction of their income on food now than in 1900, this suggests that the price elasticity of demand for food has probably fallen over time.

Suppose You Learn That in 1,900, Households Spent About 40