Consider a 20 percent increase in the price of a 2 pound bag of sugar and a 20 percent increase in the price of first- class airline travel. In response to the price changes, which of the following is most likely to be true?
A)The total revenue from first- class airline travel will not change.
B)The percentage change in the quantity demanded for a 2 pound bag of sugar will be larger than the percentage change in the quantity demanded for first- class airline travel.
C)Because first- class airline travel is a luxury good, the quantity demanded will not change with the 20 percent increase in price.
D)The percentage change in the quantity demanded for first- class airline travel will be larger than the percentage change in the quantity demanded for a 2 pound bag of sugar.

Question

Quizplus · Accepted Answer

First-class airline travel is a luxury good and tends to have a more inelastic demand, meaning that people are less likely to change their travel plans even with a higher price. On the other hand, sugar is a necessity and tends to have a more elastic demand, meaning that consumers are more likely to decrease their demand with a higher price. Therefore, the percentage change in the quantity demanded for first-class airline travel will be smaller than the percentage change in the quantity demanded for a 2 pound bag of sugar.

Consider a 20 Percent Increase in the Price of a 2