Assume an analyst has been hired to estimate the price elasticity of demand for hamburger (which sells for about $2.30 per pound)and filet mignon (which sells for about $20 per pound),respectively.Considering the different determinants of the price elasticity of demand and assuming the consumers in both markets have approximately the same incomes,we would expect the coefficient of price elasticity of demand in absolute value to be:
A)larger for hamburger than for filet mignon.
B)larger for filet mignon than for hamburger.
C)approximately the same for both hamburger and filet mignon.
D)none of the above because different determinants would have opposing effects on the two estimates.

Question

Quizplus · Accepted Answer

The price elasticity of demand is generally higher for luxury goods (like filet mignon) than for necessities (like hamburger), because consumers are more sensitive to price changes for luxury goods. Filet mignon, being significantly more expensive and less of a necessity, would likely have a higher price elasticity of demand.

Assume an Analyst Has Been Hired to Estimate the Price