A newspaper typically consumes a smaller fraction of a consumer's budget than a home entertainment system.Therefore,you would expect the demand for:
A)a home entertainment system to be more price-elastic.
B)a home entertainment system to be more price-inelastic.
C)newspapers to be more price-elastic.
D)the two to be equally price-elastic.

Question

Quizplus · Accepted Answer

When a product represents a smaller fraction of a consumer's budget, it tends to have a more price-elastic demand, meaning that changes in price will have a greater effect on the quantity demanded. Therefore, since newspapers consume a smaller fraction of a consumer's budget than a home entertainment system, newspapers are expected to have a more price-elastic demand. Conversely, a home entertainment system, which represents a larger fraction of a consumer's budget, would have a more price-inelastic demand.

A Newspaper Typically Consumes a Smaller Fraction of a Consumer's