Microeconomics 6th Edition by Robert Hall, Shirley Kuiper, Marc Lieberman

Exercise 14

In Table 1,the price elasticity of demand for Kellogg's Corn Flakes includes a wide range of estimates. It turns out one end of the range is observed for lowincome households,while the other is observed for high-income households. Identify which end of the range most likely corresponds to which type of household,and explain briefly. [Hint: It has to do with one of the determinants of elasticity.]
Table 1: Some Short-Run Price Elasticities of Demand
Sources: "The price sensitivity of the demand for nongroup health insurance," Congressional Budget Office,August 2005; "Uncompensated own-price elasticity for broad consumption groups," U.S. Department of Agriculture,Economic Research Service,2005; Bwo-Nung Huang,Chi-wei Yang,and Ming-jeng Hwang (2004)"New evidence on demand for cigarettes: A panel data approach," The International Journal of Applied Economics 1(1): 81-97; C. Akbay and E. Jones (2006)"Demand elasticities and price-cost margin ratios for grocery products in different socioeconomic groups," Agricultural Economics -Czech 52(5): 225-235; Mark A. Bernstein and James Griffin (2005)Regional differences in the price-elasticity of demand for energy ,National Renewable Energy Laboratory/RAND Corporation; M. Espey (1996)"Explaining the variation in elasticity estimates of gasoline demand in the United States: A meta-analysis," The Energy Journal 17(3): 49-60; Sachin Gupta et al. (1996)"Do household scanner data provide representative inferences from brand choices? A comparison with store data," Journal of Marketing Research (Fall): 383ff; F. Gasmi,J. J. Laffont,and Q. Vuong (1992)"Econometric analysis of collusive behavior in a soft-drink market," Journal of Economics and Management Strategy (Summer): 277-311; J. M. Cigliano (1980)"Price and income elasticities for airline travel," Business Economics (September): 17-21; M. R. Baye,D. W. Jansen,and Jae-Woo Lee (1992)"Advertising effects in complete demand systems," Applied Economics (October): 1087-1096; Gary W. Brester and Michael K. Wohlgenant (1991)"Estimating interrelated demands for meats using new measures for ground and table cut beef," American Journal of Agricultural Economics (November): 1182-1194